nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒10‒04
122 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. UK Term Structure Decompositions at the Zero Lower Bound By Andrea Carriero; Sarah Mouabbi; Elisabetta Vangelista
  2. On the Nexus of Monetary Policy and Financial Stability: Recent Developments and Research By Oleksiy Kryvtsov; Miguel Molico; Ben Tomlin
  3. Household Debt and Business Cycles Worldwide By Atif R. Mian; Amir Sufi; Emil Verner
  4. Endogenous Firms' ?Exit, Inefficient Banks and Business Cycle Dynamics By Lorenza Rossi
  5. The Impact of the ECB's Asset Purchase Programmes on Sovereign Bond Spreads in the Euro Are By Gibran Watfe
  6. Optimal Inflation with Corporate Taxation and Financial Constraints By Finocchiaro, Daria; Lombardo, Giovanni; Mendicino, Caterina; Weil, Philippe
  7. Economic Activity and Credit Market Linkages: New Evidence from Italy By V. Chiorazzo; V. D’Apice; P. Morelli; Giovanni W. Puopolo
  8. Precautionary Savings, Illiquid Assets, and the Aggregate Consequences of Shocks to Household Income Risk By Bayer, Christian; Lütticke, Ralph; Pham-Do, Lien; Tjaden, Volker
  9. External Shocks, Banks and Monetary Policy in an Open Economy: Loss Function Approach By Yasin Mimir; Enes Sunel
  10. Joint Dynamics of House Prices and Foreclosures By Yavuz Aslan; Bulent Guler; Temel Taskin
  11. The Hartz Reforms, the German Miracle, and the Reallocation Puzzle By Anja Bauer; Ian King
  12. Structural interdependence in monetary economics: theoretical assessment and policy implications By Cavalieri, Duccio
  13. Money, interest rates and prices in Ireland, 1933-2012 By Gerlach, Stefan; Stuart, Rebecca
  14. Business cycles and monetary regimes in the U.S. (1960 – 2014): A plea for monetary stability By Cendejas Bueno, José Luis; Castañeda, Juan Enrique; Muñoz, Félix
  15. A Tale of Tax Policies in Open Economies By Stephane Auray; Aurelien Eyquem; Paul Gomme
  16. Expected Business Conditions and Bond Risk Premia By Jonas Nygaard Eriksen
  17. Labor share decline and intellectual property products capital By Koh, Dongya; Santaeulàlia-Llopis, Raül; Zheng, Yu
  18. What drives the labour wedge? A comparison between CEE countries and the Euro Area By Ma³gorzata Skibiñska
  19. A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks? By Temesvary, Judit; Ongena, Steven; Owen, Ann L.
  20. Russian Federation 2015 From Stagnation to Recession and Back By Peter Havlik
  21. Monetary policies to counter the zero interest rate: an overview of research By Honkapohja, Seppo
  22. Cross-border effects of fiscal policy in the Eurozone By Bicu A.C.; Lieb L.M.
  23. Univariate and multivariate filters to measure the credit gap By Zsuzsanna Hosszú; Gyöngyi Körmendi; Bence Mérõ
  24. An SVAR Approach to Evaluation of Monetary Policy in India: Solution to the Exchange Rate Puzzles in an Open Economy By William Barnett; Soumya Suvra Bhadury; Taniya Ghosh
  25. Job Loss by Wage Level: Lessons from the Great Recession in Ireland By Brian Nolan; Sarah Voitchovsky
  26. Fiscal Rules, Monetary Rules and External Shocks in a Primary-Export Economy: a Model for Latin America and the Caribbean By Waldo Mendoza
  27. Disinflations in a model of imperfectly anchored expectations By Christopher G. Gibbs Author-1-Name: Christopher Author-2-Name: Gibbs Author Email:; Mariano Kulish Author-1-Name: Mariano Author-2-Name: Kulish Author Email: Authors Workplace name: School of Economics, UNSW Business School, UNSW
  28. Inequality and Public Debt: A Positive Analysis By Ryo Arawatari; Tetsuo Ono
  29. Planned fiscal consolidations and growth forecast errors: New panel evidence on fiscal multipliers By Belke, Ansgar; Kronen, Dominik; Osowski, Thomas
  30. Small Versus Large Firms Employment Patterns in Finland: a Comparison. By Fornaro, Paolo; Luomaranta, Henri
  31. Unemployment and inflation in Ireland: 1926-2012 By Gerlach, Stefan; Lydon, Reamonn; Stuart, Rebecca
  32. Real Wage Cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data By G. Verdugo
  33. Forecasting Output Growth using a DSGE-Based Decomposition of the South African Yield Curve By Rangan Gupta; Hylton Hollander; Rudi Steinbach
  34. Time variation in the size of the multiplier: a Kalecki-Harrod approach By Mark Setterfield
  35. Government Subsidized Individual Retirement System By Okan Eren; Serife Genc Ileri
  36. The Cost of Uncertainty about the Timing of Social Security Reform By Frank N. Caliendo; Aspen Gorry; Sita Slavov
  37. Common and Country Specific Economic Uncertainty By Michael Chin; Thomai Filippeli; Konstantinos Theodoridis
  38. Back to gold: Sterling in 1925 By Gerlach, Stefan; Kugler, Peter
  39. Consumption modelling considering different socio-economic household types technological change By Dr. Thomas Drosdowski; Britta Stöver; Dr. Marc Ingo Wolter
  40. Growth and distribution in Brazil the 21st century: revisiting the wage-led versus profit-led debate By Laura Carvalho; Fernando Rugitsky
  41. Les indicateus avancés de l'inflation en RDCongo By Henry Ngongo
  42. Monetary Policy: Its Effects and Implementation: Summary of the 2015 BOJ-IMES Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan By Yushi Endo; Takushi Kurozumi; Takemasa Oda; Kenichirou Watanabe
  43. Reserve Option Mechanism : Does it Work as an Automatic Stabilizer? By Oguz Aslaner; Ugur Ciplak; Hakan Kara; Doruk Kucuksarac
  44. Labor Market Distortions under Sovereign Default Crises By Tavares, Tiago
  45. Equilibrium Dynamics in a Two-Sector OLG Model with Liquidity Constraint By Antoine Le Riche; Francesco Magris
  46. The Effect of Emigration on the Hungarian Labour Market By Katalin Bodnár; Lajos Tamás Szabó
  47. Taxing Fossil Fuels under Speculative Storage By Semih Tumen; Deren Unalmis; Ibrahim Unalmis; D. Filiz Unsal
  48. Changes in the Factor Structure of the U.S. Economy: Permanent Breaks or Business Cycle Regimes? By Luke Hartigan
  49. Housing Booms and Busts, Labor Market Opportunities, and College Attendance By Kerwin Kofi Charles; Erik Hurst; Matthew J. Notowidigdo
  50. Variable Selection for Inflation : A Pseudo Out-of-sample Approach By Selen Baser Andic; Fethi Ogunc
  51. Оценка Готовности Стран СНГ к Созданию Валютного Союза c Россией (Readiness Assessment of the CIS Member States to Create a Monetary Union with Russia) By Alexander Knobel; Alexey Mironov
  52. From Financial to Real Economic Crisis: Evidence from Individual Firm-Bank Relationships in Germany By Nadja Dwenger; Frank M. Fossen; Martin Simmler
  53. Fast ML estimation of dynamic bifactor models: an application to European inflation. By Gabriele Fiorentini; Alessandro Galesi; Enrique Sentana
  54. Job Uncertainty and Deep Recessions By Gadi S. Perets; Eran Yashiv
  55. Enflasyonun Cikti Acigi ve Kredilere Duyarliligi By Mustafa Utku Özmen; Cagri Sarýkaya
  56. Decreasing Transaction Costs and Endogenous Fluctuations in a Monetary Model By Antoine Le Riche; Francesco Magris
  57. Does on-the-job informal learning in OECD countries differ by contract duration? By Ferreira Sequeda M.T.; Grip A. de; Velden R.K.W. van der
  58. Government Spending Multiplier in Turkey By Cem Cebi
  59. Growth and Cultural Preference for Education By Chu, Angus C.; Furukawa, Yuichi; Zhu, Dongming
  60. The Predictive Content of Business Survey Indicators: evidence from SIGE By Tiziana Cesaroni; Stefano Iezzi
  61. Skill Acquisition in the Informal Economy and Schooling Decisions: Evidence from Emerging Economies By Semih Tumen
  62. Bank Output Calculation in the Case of France: What Do New Methods Tell About the Financial Intermediation Services in the Aftermath of the Crisis? By Bertrand Groslambert; Raphaël Chiappini; Olivier Bruno
  63. Interest rates and the market for new light vehicles By Copeland, Adam; Hall, George J.; Maccini, Louis J.
  64. Money is more than memory By M. Bigoni; G. Camera; M. Casari
  66. The Role of International Reserves in Sovereign Debt Restructuring under Fiscal Adjustment By Tavares, Tiago
  67. Structural Change with Long-run Income and Price Effects By Diego A. Comin; Danial Lashkari; Martí Mestieri
  68. Corporate debt securities market in Poland: state of art, problems, and prospects for development (BKorporacyjny rynek papierów d³u¿nych w Polsce: aktualny stan, problemy, perspektywy rozwoju) By Tomasz Galka; Agnieszka Gontarek; Piotr Kowalski
  69. Monetary Policy, Credit Spreads, and Business Cycle Fluctuations By Edward Herbst; Dario Caldara
  70. Stagnation Traps By Luca Fornaro; Gianluca Benigno
  71. Monetary Policy with Diverse Private Expectations By Mordecai Kurz; M. Motolese; G. Piccillo; H. Hu
  72. On the Identification of Multivariate Correlated Unobserved Components Models By Trenkler, Carsten; Weber, Enzo
  73. Not All Credit is Created Equal: Mortgage vs Non-mortgage Debt and Private Saving Rate in Turkey By Cengiz Tunc; Abdullah Yavas
  74. Isoelastic Elasticity of Substitution Production Functions By Jakub Growiec; Jakub Muck
  75. Firma Maliyet Yapisi ve Maliyet Kaynakli Enflasyon Baskilari By Hatice Burcu Gurcihan Yunculer; Fethi Ogunc
  76. Securitization and asset prices By Yunus Aksoy; Henrique S. Basso
  77. Seasonalities and cycles in time series: A fresh look with computer experiments By Michel Fliess; C\'edric Join
  78. Aggregate Risk and Efficiency of Mutual Funds By Simas Kucinskas
  79. The Explanatory Power and the Forecast Performance of Consumer Confidence Indices for Private Consumption Growth in Turkey By Hatice Gokce Karasoy; Caglar Yunculer
  80. A ’Jump’ in the Stochasticity of the Solow-Swan Growth Model. By Claude Diebolt; Tapas Mishra; Mamata Parhi
  81. Labor Rigidity and the Dynamics of the Value Premium By Roberto Marfè
  82. Point and Density Forecasts Using an Unrestricted Mixed-Frequency VAR Model By Fady Barsoum
  83. Interest Rate Surprises and Transmission Mechanism in Turkey: Evidence from Impulse Response Analysis By K. Azim Ozdemir
  84. The Macroeconomics of Rural-Urban Migration By Mike Waugh; David Lagakos
  85. How Jeremy Bentham would defend against coordinated attacks By Ole Jann; Christoph Schottmüller
  86. Optimal Health Insurance in the Presence of Risky Health Behaviors By Osman Furkan Abbasoglu
  87. Turkiye’de Enflasyonun Is Cevrimlerine Duyarliligi : Cikti Acigina Duyarli TUFE Alt Gruplarinin Saptanmasi By Oguz Atuk; Cem Aysoy; Mustafa Utku Ozmen; Cagri Sarikaya
  88. Interest Rate Corridor and the Monetary Policy Stance By A. Hakan Kara
  89. The Dynamic Relationship Between Stock, Bond and Foreign Exchange Markets By Suleyman Hilmi Kal; Ferhat Arslaner; Nuran Arslaner
  90. Dynamic models for monetary transmission By Paolo Giudici; Laura Parisi
  91. Structural Change in Industrial Output: China 1995-2010 By Jose-Miguel Albala-Bertrand
  92. India as a creditor: sterling balances, 1940-1953 By Marcelo de Paiva Abreu
  93. Banking union through hungarian eyes - The MNB’s assessment of a possible close cooperation By Anikó Szombati; Kornél Kisgergely
  94. Liability Dollarization and Growth Performance of Non-Financial Firms in Turkey By Hatice Bengu Alp; Cihan Yalcin
  95. On the Uncertainty-Investment Relationship: An Overview with an Application to the Power Plant Investments in Turkish Electricity Sector By Erdal Yilmaz
  96. Stairway to Excellence. Country Report: Poland By Krzysztof Klincewicz
  97. The Finnish Great Depression of the 1990s: Soviet Trade or Home-Made? By Kuusi, Tero
  98. Who Creates Jobs? Econometric Modeling and Evidence for Austrian Firm Level Data By Peter Huber; Harald Oberhofer; Michael Pfaffermayr
  99. Financial Frictions, the Housing Market, and Unemployment By Nicolas Petrosky-Nadeau
  100. Turkiye icin Finansal Kosullar Endeksi (Turkish) By Hakan Kara; Pinar Ozlu; Deren Unalmis
  101. Consumer models and the common influence of increasing VAT and decreasing wedges By Ciuiu, Daniel
  102. The impact of infrastructure on productivity: new estimates for Québec By Dorothée Boccanfuso; Marcelin Joanis; Mathieu Paquet; Luc Savard
  103. Inflation Dynamics and Monetary Policy : A speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, Amherst, Massachusetts, September 24, 2015. By Yellen, Janet L.
  104. Financialization, Housing Bubble, and the Great Recession: an interpretation based on a circuit of capital model By Fernando Rugitsky
  105. How should a government finance redistribution policies? By Masaya Yasuoka; Minoru Hayashida
  106. A Nonlinear Certainty Equivalent Approximation Method for Dynamic Stochastic Problems By Yongyang Cai; Kenneth Judd; Jevgenijs Steinbuks
  107. Debt Projections and Fiscal Sustainability with Feedback Effects By Creedy, John; Scobie, Grant
  108. Firm Strategy, Consumer Behavior and Taxation in Turkish Tobacco Market By Oguz Atuk; Mustafa Utku Ozmen
  109. Drei Fußnoten der Wirtschaftswissenschaften zur deutschen Einheit - und eine Fußnote zur wissenschaftlichen Politikberatung By Gert G. Wagner
  110. Any lessons for today? Exchange-rate stabilisation in Greece and South-East Europe between economic and political objectives and fiscal reality, 1841-1939 By Matthias Morys
  111. Dieselization, CO2 emissions and fuel taxes in Europe By Jesús Rodríguez-López; Gustavo A. Marrero; Rosa Marina González-Marrero
  112. Indigenous Belief in a Just World: New Zealand M?ori and other Ethnicities Compared By Arthur Grimes; Robert MacCulloch; Fraser McKay
  113. Understanding the Great Recession By Lawrence Christiano
  114. FIW Note No. 20 - September 2015 By Vasily Astrov; Daniela Weiß
  115. Long-run Fiscal Projections under Uncertainty: The Case of New Zealand By Ball, Christopher; Creedy, John; Scobie, Grant
  116. Firms’ risk endogenous to strategic management choices By Delis, Mantos D.; Hasan, Iftekhar; Tsionas, Efthymios G
  117. Firms’ employment dynamics and the state of the labor market By Stadin, Karolina
  118. Credit Rating Framework for Financing of SMEs in India and role of central bank By Pankaj Kumar Gupta; Sandeepa Kaur
  119. Shadow Prices of Human Capital in Agriculture. Evidence from European FADN Regions By Biagia De Devitiis; Ornella Wanda Maietta
  120. Incerteza, tomada de decisão, hábito e instituição: uma possível articulação entre keynesianos e neoinstitucionalistas By Gustavo Chagas Goudard; Fabio Henrique Bittes Terra
  121. L’impact de l’Enseignement Supérieur sur la Croissance Economique L'Impact de l'Enseignement Supérieur sur la Croissance Economique Cas de la Tunisie, le Maroc et la Corée du Sud By Sbaouelgi, Jihène
  122. Trade Shocks and Mexican Local Labor Markets in the Great Recession By Oscar Mendez

  1. By: Andrea Carriero (Queen Mary University of London); Sarah Mouabbi (Banque de France); Elisabetta Vangelista (UK Debt Management Office)
    Abstract: This paper employs a Zero Lower Bound (ZLB) consistent shadow-rate model to decompose UK nominal yields into expectation and term premia components. Compared to a standard affine term structure model, it performs relatively better in a ZLB setting and effectively captures the countercyclical nature of term premia. The ZLB model is then exploited to estimate inflation expectations and risk premia. This entails jointly pricing and decomposing nominal and real UK yields. We find evidence that medium- and long-term inflation expectations are contained within narrower bounds since the early 1990s, suggesting monetary policy credibility improved after the introduction of inflation targeting.
    Keywords: No-arbitrage, Term structure, Zero-lower bound, Risk premia, Inflation Expectations
    JEL: E31 E43 E52 E58 G12
    Date: 2015–09
  2. By: Oleksiy Kryvtsov; Miguel Molico; Ben Tomlin
    Abstract: Because financial and macroeconomic conditions are tightly interconnected, financial stability considerations are an important element of any monetary policy framework. Yet, the circumstances under which it would be appropriate for the Bank to use monetary policy to lean against financial risks need to be more fully specified (Côté 2014). The extent to which financial stability concerns should be taken into account by monetary policy will be a priority topic of research at the Bank for the renewal of the inflation-control target agreement in 2016. This paper reviews four considerations of interest, taking stock of key domestic and international developments and knowledge gained over the past few years: (i) Canada and other countries have made significant progress in the implementation of micro- and macroprudential regulatory reforms, and limited existing research finds that most of these policies were effective in reducing the potential need for leaning by monetary policy; (ii) the effectiveness of the monetary policy transmission mechanism depends on the state of the financial system, implying that financial system conditions need to be taken into account by monetary policy; (iii) although exceptionally low interest rates and other forms of monetary stimulus are sometimes needed to support growth and achieve inflation-target mandates, they may lead to excessive risk-taking activities and therefore contribute to the buildup of financial imbalances; and (iv) coordination of monetary and macroprudential policies for dealing with imbalances may, in some circumstances, be beneficial. The paper concludes by identifying future areas of research to further clarify the role of monetary policy in addressing financial stability risks.
    Keywords: Financial stability, Monetary policy framework
    JEL: E0 E44 E52 E58 G18
    Date: 2015
  3. By: Atif R. Mian; Amir Sufi; Emil Verner
    Abstract: A rise in the household debt to GDP ratio predicts lower output growth and higher unemployment over the medium-run, contrary to standard macroeconomic models. GDP forecasts by the IMF and OECD underestimate the importance of a rise in household debt to GDP, giving the change in household debt to GDP ratio of a country the ability to predict growth forecasting errors. We use lower credit spreads and increases in risky debt issuance as instruments for the rise in household debt to GDP to argue that our results are supportive of recent models where debt growth is driven by changes in credit supply, borrowing constraints, or risk premia. We also show that a rise in household debt to GDP is associated contemporaneously with a rising consumption share of output, a worsening of the current account balance, and a rise in the share of consumption goods within imports. This is followed by strong external adjustment when the economy slows as the current account reverses and net exports increase due to a sharp fall in imports. Finally, an increase in global household debt to GDP also predicts lower global output growth. The pre-2000 predicted relationship between global household debt changes and subsequent global growth matches closely the actual decline in global growth after 2007 given the large increase in household debt during the early to mid-2000s.
    JEL: E17 E2 E21 E32 E44 G01 G21
    Date: 2015–09
  4. By: Lorenza Rossi
    Abstract: I consider a NK-DSGE model with endogenous ?firms'? exit and entry together with a monopolistic competitive banking sector, where defaulting ?firms do not repay loans to banks. I show that the exit margin is an important shock transmission channel. It implies: i) an endogenous countercyclical number of fi?rms destruction; ii) an endogenous countercyclical bank markup and spread. The interaction between i) and ii) generates a stronger propagation mechanism with respect to a model with efficient banks. Compared to a model with exogenous exit the model generates a correlation between output and ?firms' ?entry closer to the data.
    Keywords: fi?rms ?endogenous exit, ?firms dynamics, monopolistic banking, inefficient fi?nancial markets, countercyclical bank markup, interest rate spread..
    JEL: E32 E44 E52 E58
    Date: 2015
  5. By: Gibran Watfe (European Economic Studies Department, College of Europe)
    Abstract: This paper estimates the immediate impact of the European Central Bank's asset purchase programmes on sovereign bond spreads in the euro area between 2008 and 2015 using a country-by-country GARCH model. The baseline estimates are rigorously diagnosed for misspecication and subjected to a wide range of sensitivity tests. Among others, changes in the dependent variable, the independent variables and the number of (G)ARCH terms are tested. Moreover, the model is applied to subsamples and dynamic conditional cor- relations are analyzed to estimate the eects of the asset purchases on the contagion of spread movements. Generally, it is found that the asset purchase programmes triggered an reduction of sovereign bond spreads. More specically, the Securities Markets Programme (SMP) had the most signicant immediate eects on sovereign bond spreads across the euro area. The announcements related to the Outright Monetary Transactions (OMT) programme also yielded substantial spread compression in the periphery. In contrast to that, the most recent Public Sector Purchase Programme (PSPP) announced in January 2015 and implemented since March 2015 had no signicant immediate eects on sovereign bond spreads, except for Irish spreads. Hence, immediate eects seem to be dependent upon the size of the programme, the extent to which it targets distressed sovereigns and the way in which it is communicated.
    Keywords: European Central Bank, asset purchase programmes, sovereign bond yield spreads, event study, GARCH model
    JEL: E52 E58 E44 G12
    Date: 2015–09
  6. By: Finocchiaro, Daria; Lombardo, Giovanni; Mendicino, Caterina; Weil, Philippe
    Abstract: This paper revisits the equilibrium and welfare effects of long-run inflation in the presence of distortionary taxes and financial constraints. Expected inflation interacts with corporate taxation through the deductibility of i) capital expenditures at historical value and ii) interest payments on debt. Through the first channel, inflation increases firms’ taxable profits and further distorts their investment decisions. Through the second, expected inflation affects the effective real interest rate negatively, relaxes firms’ financial constraints and stimulates investment. We show that, in the presence of collateralized debt, the second effect dominates. Therefore, in contrast to earlier literature, we find that when the tax code creates an advantage of debt financing, a positive rate of long-run inflation is beneficial in terms of welfare as it mitigates the financial distortion and spurs capital accumulation.
    Keywords: credit frictions; Friedman rule; optimal monetary policy; tax benefits of debt
    JEL: E31 E43 E44 E52 G32
    Date: 2015–09
  7. By: V. Chiorazzo (Italian Banking Association); V. D’Apice (Italian Banking Association); P. Morelli (Italian Banking Association); Giovanni W. Puopolo (Università Bocconi and CSEF)
    Abstract: We investigate the interactions between the business cycle and credit markets in Italy, focusing on how macroeconomic shocks affect the banking sector (i.e. the real effect) and in turn how the financial system’s reaction influences the economic activity (i.e. the feedback effect). We find evidence of both effects, with the former conveyed primarily by the creditworthiness of large firms. Moreover, using data from the Bank Lending Survey provided by the ECB, we disentangle credit supply shocks due to factors inside the banking sector (the bank lending channel), from those outside the banking sector (the borrower’s balance-sheet channel), finding that both types of shocks have a significant impact on the real economy. Our results have far reaching implications for financial stability.
    Keywords: Real effect, Feedback effect, Bank Lending Channel, Balance-Sheet Channel, VAR, Business Cycle
    JEL: E32 E44 G28 G01 G21
    Date: 2015–09–20
  8. By: Bayer, Christian; Lütticke, Ralph; Pham-Do, Lien; Tjaden, Volker
    Abstract: Households face large income uncertainty that varies substantially over the business cycle. We examine the macroeconomic consequences of these variations in a model with incomplete markets, liquid and illiquid assets, and a nominal rigidity. Heightened uncertainty depresses aggregate demand as households respond by hoarding liquid ``paper'' assets for precautionary motives, thereby reducing both illiquid physical investment and consumption demand. This translates into output losses, which a central bank can prevent by providing liquidity. We show that the welfare consequences of uncertainty shocks crucially depend on a household's asset position. Households with little human capital but high illiquid wealth lose the most from an uncertainty shock and gain the most from stabilization policy.
    Keywords: incomplete markets; nominal rigidities; uncertain shocks
    JEL: E12 E22 E32
    Date: 2015–09
  9. By: Yasin Mimir; Enes Sunel
    Abstract: We systematically document that the 2007-09 financial crisis exposed emerging market economies (EMEs) to an adverse feedback loop of capital outflows, depreciating exchange rates, deteriorating balance sheets, rising credit spreads and falling real economic activity. Using a medium-scale New Keynesian DSGE model of a small open economy augmented with a banking sector that has access to both domestic and foreign funds, we explore the quantitative performances of alternative augmented IT rules in terms of macroeconomic and financial stabilization. In response to external financial shocks, credit-augmented IT rules are found to outperform output and exchange rate augmented rules in achieving policy mandates that target financial and external stability. A countercyclical reserve requirement policy that positively responds to the noncore liabilities share is found effective especially in coordination with monetary policy in reducing the procyclicality of the financial system.
    Keywords: External shocks, Banks, Foreign debt, Reserve requirements
    JEL: E44 G21 G28
    Date: 2015
  10. By: Yavuz Aslan; Bulent Guler; Temel Taskin
    Abstract: This paper studies the joint transitional dynamics of the foreclosures and house prices in a standard life-cycle incomplete markets model with housing and a realistic long-term mortgage structure. We calibrate our model to match several long term features of the US housing market, and analyze the effects of several unexpected and permanent shocks on the house price and the foreclosure rate both across the steady-states and along the transition between the steady-states. We examine permanent, unexpected shocks to the risk-free interest rate, the minimum down payment ratio, and unemployment. During the transition, these shocks create large movements in house prices. More importantly, the foreclosure dynamics are quite significant along the transition compared to the steady-state changes, and there are strong feedbacks between foreclosures and house prices. We assess the effects of a temporary reduction in the risk-free interest rate, which has moderate effects on house prices but little effect on foreclosure dynamics. We also study the effects of an ex-ante macroprudential policy, which establishes a minimum downpayment requirement at a higher threshold. Such a macroprudential policy helps substantially stabilize both house prices and foreclosures.
    Keywords: Housing, House price, Interest rate, Mortgage contract, Mortgage default, Home equity
    JEL: D91 E21 G01 R21
    Date: 2014
  11. By: Anja Bauer (Friedrich-Alexander University of Erlangen-Nuremberg); Ian King (School of Economics, The University of Queensland)
    Abstract: We examine the proposition that the Hartz reforms offset the GFC’s effect on unemployment (leading to the â€German miracleâ€) and the GFC offset the Hartz reform’s effects on reallocation, in Germany (leading to the reallocation puzzle) over the period 2005-2010. To do so, we use a labor reallocation model based on Lucas and Prescott (1974), but with the additional features of unemployment benefits and rest unemployment. The model generates two simple conditions that must hold for two events to simultaneously offset each other in this way. We estimate the key parameters of the model to assess the extent to whether these conditions were satisfied in Germany at that time. We find that the observed drop in productivity due to the GFC (6.6%) fell somewhat short of the drop required to explain the reallocation puzzle (10.1%). Conditional on this offset taking place, the observed percentage drop in unemployment benefits (26.7%) was approximately four times that required (6.6%) for the German miracle.
    Keywords: Labor market reallocation, unemployment, policy, Hartz reforms
    JEL: E24 E43 E65 J24 J62 J65
    Date: 2015–09–21
  12. By: Cavalieri, Duccio
    Abstract: This is a theoretical analysis of structural interdependence in monetary economics. Some recent attempts to integrate money and finance in the theory of income and expenditure are initially examined. The Sraffian dichotomic interpretation of classical political economy is refused. A version of the classical surplus approach devoid of separating connotations is sketched, where flows and stocks are consistently reconciled and net financial wealth vanishes in the aggregate. Marx’s law of value is considered and set aside, as historically outdated by the advent of cognitive capitalism. New Consensus and New Neoclassical Synthesis macroeconomic models are criticized from an orthodox Keynesian point of view. Two further results emerge from the analysis: the illegitimacy of Marx’s asymmetrical treatment of constant and variable capital in the theory of value and the suggestion of a correct method for measuring the unit cost of real capital. Some reasons for reconsidering in this perspective the traditional approaches to monetary theory and policy are indicated.
    Keywords: monetary theory; monetary policy; fiscal policy; structural interdependence; Sraffian dichotomy; post-Keynesian economics; SFCA; MMT; MEV
    JEL: B22 E12 E44 E5 E52 M41
    Date: 2015–07–09
  13. By: Gerlach, Stefan; Stuart, Rebecca
    Abstract: In this paper we assemble an annual data set on broad and narrow money, prices, real economic activity and interest rates in Ireland from a variety of sources for the period 1933-2012. We discuss in detail how the data set is constructed and what assumptions we have made to do so. Furthermore, we estimate a simple SVAR model to provide some empirical evidence on the behaviour of these time series. Money supply shocks appear to be the most important drivers of both money and prices. Interest rate shocks, which capture monetary policy, play an important role driving output and, of course, interest rates. The GDP shocks, which raise prices, seem of less importance.
    Keywords: Ireland,historical statistics,long time series,business cycles,SVAR
    JEL: E3 E4 N14
    Date: 2015
  14. By: Cendejas Bueno, José Luis (Instituto de Investigaciones Económicas y Sociales Francisco de Vitoria); Castañeda, Juan Enrique (Economics and International Studies Department. University of Buckingham.); Muñoz, Félix (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: It is still highly debated whether the Fed took sufficiently into account the rapid increase in both financial and real asset prices as well as money growth in the framing of monetary policy decisions in the years prior to the outbreak of the Global Financial Crisis; something similar occurred in the 1970s as regard the slow and insufficient response of the Fed to the growth of CPI prices. In our view, these two episodes are prime examples of how the absence of a more comprehensive monetary strategy has resulted in a case-by-case decision-making policy by the Fed lacking in consistency and effectiveness over the long term. In this respect, two elements of the central bank strategy become key: the choice of the information set the monetary authorities process and use to make policy decisions and the (main) economic model used to process that information. In this paper we consider a wide range of indicators to identify the dynamics and interaction between several output and price indicators (broadly defined to include CPI, industrial and asset prices) along the business cycle. In particular, we adopt unobserved component models to estimate and analyse the cyclical common factors of output measures, inflation and asset prices, interest rates (both short and longer term), and narrow and broad money growth measures, since 1960 to 2014 in the US. Once estimated, we analyse the correlations between these common factors and their changes in order to identify common behavioural patterns amongst them along the cycle. This analysis will result in a ‘core information set’ for the Fed suitable to frame and possibly implement a more stable monetary policy throughout the business cycle.
    Keywords: US business cycle; US monetary policy regimes; Central Bank strategy; Money; Inflation; Cyclical common factors; Core information set.
    JEL: C32 E32 E52
    Date: 2015–09
  15. By: Stephane Auray (CREST-Ensai and Universite du Littoral Cote d'Opale); Aurelien Eyquem (CREST-Ensai, CNRS, and GATE-Lyon Saint-Etienne); Paul Gomme (Concordia University and CIREQ)
    Abstract: To evaluate fiscal policy reforms for Euro-area countries, this paper develops and calibrates a small open economy model. Debt reduction reforms require higher tax rates in the short term in exchange for lower rates in the long term as the debt servicing burden falls. Using the capital income tax to implement such a policy leads to welfare gains; the consumption tax, a very small welfare gain; and the labor income tax, a welfare loss. Holding fixed the long run debt-output ratio, offsetting a lower capital income tax with either a higher labor income or consumption tax generally yields welfare gains.
    Keywords: Fiscal policies, open economies, public deficits, tax reforms.
    JEL: E31 E62 F41
    Date: 2015–09
  16. By: Jonas Nygaard Eriksen (Aarhus University and CREATES)
    Abstract: This paper studies the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. We show that expected business conditions consistently affect excess bond returns and that the inclusion of expected business conditions in standard predictive regressions improve forecast performance relative to models using information derived from the current term structure or macroeconomic variables. The results are confirmed in a real-time out-of-sample exercise, where the predictive accuracy of the models is evaluated both statistically and from the perspective of a mean-variance investor that trades in the bond market.
    Keywords: Bond risk premia, expected business conditions, predictability, economic value, expectations hypothesis, time-varying risk premia
    JEL: E43 E44 E47 G11 G12
    Date: 2015–09–24
  17. By: Koh, Dongya; Santaeulàlia-Llopis, Raül; Zheng, Yu
    Abstract: We study the behavior of the US labor share over the past 65 years. We find that intellectual property products (IPP) capital entirely accounts for the observed decline of the US labor share, which otherwise is secularly constant for structures and equipment capital. The decline of the labor share reflects that the US is undergoing a transition to a more IPP capital-intensive economy. This result has essential implications for the US macroeconomic model.
    Keywords: Labor Share, Intellectual Property Products, Capital, 1999- and 2013-BEA Revisions
    JEL: E01 E22 E25
    Date: 2015
  18. By: Ma³gorzata Skibiñska
    Abstract: We use a structural macroeconomic model with search and matching frictions on the labour market to analyse the di?erences in the business cycle ?uctuations of the labour wedge between two CEE countries and the Euro Area. Our results indicate that the observed higher volatility of this wedge in the CEE region re?ects mainly di?erent characteristics of stochastic disturbances rather than country-speci?c features of the labour market. We also ?nd signi?cant di?erences in the sources of labour wedge ?uctuations across the considered economies. While the labour wedge dynamics in Poland is to large extent explained by shocks originating in the labour market, most of its variations in the Czech Republic and in the Eurozone are attributable to changes in households’ preferences. Overall, our results suggest that labour market frictions in Poland are relatively more severe and generate ?uctuations that are more harmful for social welfare.
    Keywords: labour wedge, search and matching frictions, business cycle, CEE countries
    JEL: E32 J64
    Date: 2015–09
  19. By: Temesvary, Judit; Ongena, Steven; Owen, Ann L.
    Abstract: We examine how U.S. monetary policy affects the international activities of U.S. Banks. We access a rarely studied US bank-level dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affects changes in cross-border claims by U.S. banks across countries, maturities and sectors, and also affects changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross-border claims in both the pre and post-crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions
    Keywords: bank lending channel,monetary transmission,global banking,cross-country analysis
    JEL: E44 E52 F42 G15 G21
    Date: 2015
  20. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary Russia was in the direst straits even before the Ukraine crisis erupted on a grand scale in 2014. The sanctions imposed after the annexation of Crimea have deterred investments still further and instigated capital flight. The oil price slump of late 2014 and the related collapse of the rouble have inflicted additional pain and boosted inflation. Assuming that the sanctions and oil prices remain at their current (mid-2015) levels, our baseline scenario sticks to an earlier forecast of a close to 4% drop in GDP in 2015, followed by weak recovery resulting from a gradual revival in government-sponsored investment and the sluggish launch of import substitution programmes. The latter, together with more state interventions and changing the pivot from the EU to the East, could provide a modest, yet unimpressive, stimulus to the economy. Nevertheless, the chances for a successful implementation of industrial policies aiming at the diversification of the economy are now even bleaker under the regime of sanctions than in the past, and the economic prospects are accordingly gloomy.
    Keywords: Russia, prices, industrial policy, foreign trade, economic integration
    JEL: E6 F4 O4 O5
    Date: 2015–09
  21. By: Honkapohja, Seppo (Bank of Finland)
    Abstract: Many central banks have lowered their interest rates close to zero in response to the crisis since 2008. In standard monetary models the zero lower bound (ZLB) constraint implies the existence of a second steady state in addition to the inflation-targeting steady state. Large scale asset purchases (APP) have been used as a tool for easing of monetary policy in the ZLB regime. I provide a theoretical discussion of these issues using a stylized general equilibrium model in a global nonlinear setting. I also review briefly the empirical literature about effects of APP’s.
    Keywords: adaptive learning; monetary policy; inflation targeting; zero interest rate lower bound
    JEL: E52 E58 E63
    Date: 2015–08–20
  22. By: Bicu A.C.; Lieb L.M. (GSBE)
    Abstract: We empirically assess spillovers from fiscal policy in the Euro area. We propose a structural multi-country factor-augmented vector autoregression model identified with sign restrictions and analyse the domestic and international effects of fiscal policy measures. By extracting information from an extended set of country specific and cross-border variables, we are able to account for the different channels through which government expenditure shocks are transmitted within as well as across borders. We find significant negative effects of fiscal consolidations on domestic output, private consumption and investment. More importantly, spending cuts in Italy and Spain induce significant and persistent output spillovers on Germany and France.
    Keywords: Fiscal Policy; International Policy Coordination and Transmission;
    JEL: E62 F42
    Date: 2015
  23. By: Zsuzsanna Hosszú (Magyar Nemzeti Bank (Central Bank of Hungary)); Gyöngyi Körmendi (Magyar Nemzeti Bank (Central Bank of Hungary)); Bence Mérõ (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: Within the framework of the Basel III capital regulation, macroprudential authorities may order the accumulation of countercyclical capital buffers in the period when systemic risks are building up. According to recommendations, it is worth setting the size of the capital buffer on the basis of the magnitude of the credit-to-GDP ratio gap. Therefore, the time series of Hungary’s credit-to-GDP ratio is decomposed to trend and cyclical components (credit gap) using four trend filtering methods: univariate Hodrick–Prescott filter, univariate Christiano–Fitzgerald filter, univariate Beveridge–Nelson filter and multivariate Hodrick–Prescott filter. The decomposition was carried out separately for the household and corporate segments. Of the four methods, it is the results of the multivariate Hodrick–Prescott filter, which also uses the information content of other variables, that reflect experts’ assessment relating to developments in lending in Hungary the most. In addition, endpoint uncertainty was also the smallest in this case, i.e. the receipt of new data caused the smallest changes in the values estimated for previous periods here.
    Keywords: countercyclical capital buffer, credit gap, trend filtering method
    JEL: C30 E32 G28
    Date: 2015
  24. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Soumya Suvra Bhadury (Department of Economics, The University of Kansas;); Taniya Ghosh (Indira Gandhi Institute of Development Research (IGIDR), Reserve Bank of India, Mumbai, India)
    Abstract: Following the exchange-rate paper by Kim and Roubini (2000), we revisit the questions on monetary policy, exchange rate delayed overshooting, the inflationary puzzle, and the weak monetary transmission mechanism; but we do so for the open Indian economy. We further incorporate a superior monetary measure, the aggregation-theoretic Divisia monetary aggregate. Our paper confirms the efficacy of the Kim and Roubini (2000) contemporaneous restriction, customized for the Indian economy, especially when compared with recursive structure, which is damaged by the price puzzle and the exchange rate puzzle. The importance of incorporating correctly measured money into the exchange rate model is illustrated, when we compare models with no-money, simple-sum monetary measures, and Divisia monetary measures. Our results are confirmed in terms of impulse response, variance decomposition analysis, and out-of-sample forecasting. In addition, we do a flip-flop variance decomposition analysis, finding two important phenomena in the Indian economy: (i) the existence of a weak link between the nominal-policy variable and real-economic activity, and (ii) the use of inflation-targeting as a primary goal of the Indian monetary authority. These two main results are robust, holding across different time period, dissimilar monetary aggregates, and diverse exogenous model designs.
    Keywords: Monetary Policy; Monetary Aggregates; Divisia monetary aggregates; Structural VAR; Exchange Rate Overshooting; Liquidity Puzzle; Price Puzzle; Exchange Rate Puzzle; Forward Discount Bias Puzzle.
    JEL: C32 E51 E52 F31 F41
    Date: 2015–08
  25. By: Brian Nolan (Institute for New Economic Thinking and Department of Social Policy and Intervention, University of Oxford); Sarah Voitchovsky (Melbourne Institute of Applied Economic and Social Research, University of Melbourne)
    Abstract: This paper explores the pattern of job loss in the Great Recession with a particular focus on its incidence by wage level, using data for Ireland. Ireland experienced a particularly pronounced decline in employment with the onset of the recession by international and historical standards, which makes it a valuable case study. Using EU-SILC data, our analysis identifies which employees were most affected. The results show that the probability of staying in employment, from one year to the next, is positively related to monthly wages both during the boom and in the bust. The gradient with wages, however, is much more marked in the bust, and remains significantly so even after controlling for a range of individual characteristics including part-time status, demographics, education, labour market history, industries or occupations.
    Keywords: skills, occupations, wages, Great Recession, Ireland, job loss, EU-SILC
    JEL: E24 J23 J24 J62 J63
    Date: 2015–09–23
  26. By: Waldo Mendoza (Departamento de Economía de la Pontificia Universidad Católica del Perú)
    Abstract: The macroeconomic performance of Latin America and the Caribbean (LAC) is closely linked to the evolution of the world economy. The lost decade of the eighties cannot be explained by abstracting it from the deterioration in the terms of trade and the rising interest rates in the developed world that occurred during that period. Nor can the golden decade of 2002 to 2011 be understood without considering the significant improvement in the terms of trade and the considerable reduction in international interest rates. Finally, it is not possible to understand the slowdown in economic growth in LAC since 2011 by ignoring the deterioration of the region's terms of trade and rising global interest rates. This article discusses the connections to the global economy of a small, open, primaryexport economy dependent on external financing, where monetary policy operates under an inflation-targeting scheme; the reference rate for interbank markets is a policy instrument; and fiscal policy works by imposing a limit on the fiscal deficit as a percentage of GDP. The model allows us to evaluate the effects of changes in the prices of export commodities and global interest rates, as well as the impact of monetary and fiscal policies on output, price level, exchange rate, and the domestic interest rate. JEL Classification-JEL: E1, E5, E6
    Keywords: Fiscal rules, monetary rules, external shocks, Latin America and the Caribbean
    Date: 2015
  27. By: Christopher G. Gibbs Author-1-Name: Christopher Author-2-Name: Gibbs Author Email:; Mariano Kulish Author-1-Name: Mariano Author-2-Name: Kulish Author Email: Authors Workplace name: School of Economics, UNSW Business School, UNSW
    Abstract: We study disinflations under imperfect credibility of the central bank. Imperfect credibility is modeled as the extent to which agents rely on adaptive learning to form expectations. Lower credibility increases the mean, variance, and skewness of the distribution of sacrifice ratios. When credibility is low, disinflationary policies become very costly for adverse realizations of the shocks. Even if the impact of an announcement decreases with lower credibility, pre-announcing a disinflation reduces the sacrifice ratio. Additionally, disinflationary policies implemented after a period of below trend inflation lead to lower sacrifice ratios. Opportunistic disinflations are desirable when credibility is low.
    Keywords: disinflation; sacrifice ratio; imperfect credibility; adaptive expectations; rational expectations
    JEL: E52
    Date: 2015–09
  28. By: Ryo Arawatari (Graduate School of Economics, Nagoya University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study extends the multi-country, politico-economic model of fiscal policy developed by Song, Storesletten, and Zilibotti (2012) to incorporate wage inequal- ity within each country. In this extended framework, we present conflict over fiscal policy within and across generations and show that a low-inequality country real- izes tight fiscal policy with low public debt accumulation, whereas a high-inequality country experiences loose fiscal policy with high public debt. This model predic- tion is consistent with empirical evidence from OECD countries for the past three decades.
    Keywords: scal policy; inequality; probabilistic voting; public debt; small openeconomies.
    JEL: D72 E62 F34 H41 H60
    Date: 2015–01
  29. By: Belke, Ansgar; Kronen, Dominik; Osowski, Thomas
    Abstract: This paper analyzes the effect of planned fiscal consolidation on GDP growth forecast errors from the years 2010-2013 using cross section analyses and fixed effects estimations. Our main findings are that fiscal multipliers have been underestimated in most instances for the year 2011 while we find little to no evidence for the years 2010 and especially the latter years 2012/13. Since the underestimation of fiscal multipliers seems to have decreased over time, it may indicate learning effects of forecasters. However, the implications for fiscal policy should be considered with caution as a false forecast of fiscal multipliers does not confirm that austerity is the wrong fiscal approach but only suggests a too optimistic assessment of fiscal multipliers for the year 2011.
    Abstract: Diese Arbeit analysiert den Effekt geplanter fiskalischer Konsolidierungen auf den Prognosefehler des BIP-Wachstums für die Jahre 2010-2013 mittels Querschnittsanalysen und Fixed Effects Modellen. Unsere Ergebnisse zeigen, dass fiskalische Multiplikatoren im Jahr 2011 in den meisten Fällen unterschätzt wurden, während für das Jahr 2010 und speziell die späteren Jahre 2012 und 2013 wenig bis gar kein Anzeichen einer Unterschätzung zu finden ist. Die Unterschätzung fiskalischer Multiplikatoren nimmt mit der Zeit ab, was ein Zeichen für Lerneffekte bei der Prognose sein könnte. Die Implikationen für die Fiskalpolitik sollte allerdings vorsichtig betrachtet werden, da ein falscher fiskalischer Multiplikator nicht impliziert, dass Austerität das falsche haushaltspolitische Vorgehen ist. Es ist lediglich eine zu positive Einschätzung fiskalischer Multiplikatoren für das Jahr 2011 festzustellen.
    Keywords: fiscal multiplier,austerity,growth forecast errors,panel econometrics
    JEL: C23 E61 E62 G01
    Date: 2015
  30. By: Fornaro, Paolo; Luomaranta, Henri
    Abstract: In this paper, we use monthly employment data of Finnish firms to examine the differences in the employment behavior between big and small enterprises. In particular, we investigate which size class of firms has been growing more, which one has been the driver of net job creation and finally which type of enterprise has been more procyclical. In line with previous literature, we utilize various definitions to include a firm inside the small or large category, and consider both one dataset including entry and exit and one including only long-lasting firms. We find that small firms have shown higher growth rates, on average, and that they have been the driver of employment creation. Finally, we find that large firms are more procyclical than small enterprises, especially during economic contractions.
    Keywords: Firm-level data, Large datasets, Employment statistics
    JEL: E24 E32 J63 L25 L26
    Date: 2015
  31. By: Gerlach, Stefan; Lydon, Reamonn; Stuart, Rebecca
    Abstract: Since the 1970s, the overarching view in the literature has been that a Phillips curve relationship did not exist in Ireland prior to the 1979 exchange rate break with Sterling. It was argued that, as a small open economy, prices were determined externally. To test this relationship, we study the determination of inflation between 1926 and 2012, a longer sample period than any previously used. We find that the difference between unemployment and the NAIRU is a significant determinant of inflation both in the full sample and in the subsamples spanning the periods before and after the Sterling parity link.
    Keywords: Ireland,historical statistics,inflation,unemployment,import prices
    JEL: E3 E4 N14
    Date: 2015
  32. By: G. Verdugo
    Abstract: We study the response of real wages to the business cycle in eight major Eurozone countries before and during the Great Recession. Average real wages are found to be acyclical, but this reflects, in large part, the effect of changes in the composition of the labour force related to unemployment variations over the cycle. Using longitudinal micro data from the ECHP and SILC panels to control for composition effects, we estimate the elasticities of real wage growth to unemployment increases between -0.6 and -1 over the period 1994-2011. Composition effects have been particularly large since 2008, and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011. In contrast, at a constant labour force composition in terms of education and experience, the figures indicate a significant decrease in average wages during the downturn, particularly in countries most affected by the crisis. Overall, there is no evidence of downward nominal wage rigidity during the Great recession in most countries in our sample.
    Keywords: age cyclicality, wage rigidity, Great recession, Euro zone.
    JEL: J30 E32
    Date: 2015
  33. By: Rangan Gupta (Department of Economics, University of Pretoria); Hylton Hollander (African Institute of Financial Markets & Risk Management, Faculty of Commerce, University of Cape Town, South Africa); Rudi Steinbach (Economic Research and Statistics Department, South African Reserve Bank)
    Abstract: Evidence in favor of the ability of the term spread to forecast economic growth of the South African economy is non-existent. Presuming that this could be due to the term spread aggregating, and hence loosing out on important, information contained in the expected spread and the term premium, we: (i) Develop an estimable Small Open Economy New Keynesian Dynamic Stochastic General Equilibrium (SOENKDSGE) model of the in ation targeting South African economy; (ii) Use the SOENKDSGE model, estimated using Bayesian methods, to decompose the term spread into an expected spread and the term premium over the quarterly period of 2000:01-2014:04, and; (iii) Use a linear predictive regression framework to analyze the out-of-sample forecasting ability of the aggregate term spread, as well as the expected spread and term premium. Our forecasting results fail to detect forecasting gains from the aggregate term spread and also the term premium, but the expected spread is found to contain important information in forecasting the output growth over short- to medium-run horizons, over the out-of-sample period of 2004:01-2014:04. In other words, we confirm our presumption, and in the process highlight the importance of the forward looking component of the term spread, i.e., the expected spread, in forecasting output growth of South Africa.
    Keywords: Structural decomposition, Term spread, DSGE, Predictive regression framework, Forecasting output growth, South Africa
    JEL: C22 C53 E32 E43 E47
    Date: 2015–09
  34. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: A growing empirical literature demonstrates that the size of the expenditure multiplier varies over time, being both larger and consistently greater than one during periods of slow growth and/or recession. This paper contributes to the theory of the time-varying multiplier. It is shown that a combination of Kalecki’s dynamic theory of investment and Harrod’s “satisficing” approach to the investment decision furnish a theory in which the “crowding in” of investment expenditures following an initial demand stimulus (fiscal or otherwise) gives rise to an elevated expenditure multiplier during times of pronounced macroeconomic distress.
    Keywords: Multiplier, investment, crowding in, Kalecki, Harrod
    JEL: E11 E12 E22 E32
    Date: 2015–09
  35. By: Okan Eren; Serife Genc Ileri
    Abstract: A new private pension scheme where the government makes direct contributions to the retirement accounts has been effective in Turkey since 2013. In this paper we examine the quantitative impacts of this new individual retirement system on the saving rate, capital stock and the long-run welfare of the individuals. We build a multi-period OLG model and simulate an economy with a pension scheme similar to the one in Turkey. Our simulation results reveal that the introduction of this private pension scheme increases the net saving rate by 0.27 percentage points. 23.9 percent of the increase in individual retirement assets constitutes incremental saving. The impact of the new system on physical capital stock is a 15.6 percent rise. According to our long-run welfare analysis, an unborn individual prefers to be born into the economy with individual retirement accounts (IRAs). Our results also suggest that cutting down the fees charged on individual retirement accounts generates a considerable improvement in net saving rate and the stock of physical capital.
    Keywords: Household Saving, Fiscal Policy, Private Pension Accounts
    JEL: D14 D91 E21 E62
    Date: 2015
  36. By: Frank N. Caliendo; Aspen Gorry; Sita Slavov
    Abstract: We develop a model to study optimal decision making in the face of uncertainty about the timing and structure of a future event. The model is used to study optimal decision making and welfare when individuals face uncertainty about when and how Social Security will be reformed. When individuals save optimally for retirement, the welfare cost of uncertainty about the timing and structure of reform is just a few basis points of total lifetime consumption. In contrast, the cost of reform uncertainty can be greater than 1% of total lifetime consumption for individuals who do not save.
    JEL: C61 E21 E60 H30 H55
    Date: 2015–09
  37. By: Michael Chin (Bank of England); Thomai Filippeli (Queen Mary University of London); Konstantinos Theodoridis (Bank of England)
    Abstract: Long-term interest rates in a number of small-open inflation targeting economies co-move more strongly with US long-term rates than with short-term rates in those economies. We augment a standard small open-economy model with imperfectly substitutable government bonds and time-varying term premia that captures this phenomenon. The estimated model fits a range of US and UK data remarkably well, and produces term premium estimates that are comparable to estimates from the affine term structure model literature. We find that the strong co-movement between US and UK long-term interest rates arises primarily via correlated policy rate expectations, rather than through correlated term premia. This is due to policymakers in both economies responding to foreign productivity and discount factor shocks that cause persistent changes in inflation. We also overcome the common failure of similar models to account for the large influence of foreign disturbances on domestic economies found empirically, where in our model around 40% of the variation in UK GDP can be explained by shocks originating in the US economy.
    Keywords: DSGE model, Small open economy, Yield curve, Long-term interest rates, Term premia, Co-movement
    JEL: E43 E44 F30 F44 G15
    Date: 2015–09
  38. By: Gerlach, Stefan; Kugler, Peter
    Abstract: Expectations of Sterling returning to Gold have been disregarded in empirical work on the US dollar - Sterling exchange rate in the early 1920s. We incorporate such considerations in a PPP model of the exchange rate, letting the probability of a return to gold follow a logistic function. We draw several conclusions: (i) the PPP model works well from spring 1919 to spring 1925; (ii) wholesale prices outperform consumer prices; (iii) allowing for a return to gold leads to a higher speed of adjustment of the exchange rate to PPP; (iv) interest rate differentials and the relative monetary base are crucial determinants of the expected return to gold; (v) the probability of a return to Gold peaked at about 72% in late 1924 and but fell to about 60% in early 1925; and (vi) our preferred model does not support the Keynes' view that Sterling was overvalued after the return to gold.
    Keywords: Gold Standard,Sterling,exchange rate,PPP,expectations
    JEL: E5 F31 N1
    Date: 2015
  39. By: Dr. Thomas Drosdowski (GWS - Institute of Economic Structures Research); Britta Stöver (GWS - Institute of Economic Structures Research); Dr. Marc Ingo Wolter (GWS - Institute of Economic Structures Research)
    Abstract: Private households constitute one of the main economic sectors. The underlying house-hold structure determines income and consumption aggregates. For example, changes in the population composition induced by demographic change or shifts in the income structure through redistributional policy measures affect the level and the structure of the purchased goods and services. Socio-economic information should hence be consid-ered when modelling private consumption demand. This contribution aims to integrate more advanced socio-economic structures in a macroeconomic model environment. The socio-economic consumption module includes detailed information on consumption purposes and income components from the German Household Budget Survey. The module interacts with the macro-econometric input-output model INFORGE through a feedback mechanism. A consistent link between micro-based survey data and macroeco-nomic information based on the System of National Accounts is possible. Thus, macroeco-nomic effects of social characteristics are taken into account.
    Keywords: socio-economic modelling, household types by size and social status, household consumption, income structure
    JEL: C8 E2
    Date: 2015
  40. By: Laura Carvalho; Fernando Rugitsky
    Abstract: In the 2000s, several Latin American economies, and Brazil in particular, have engaged in relatively successful attempts to combine higher economic growth and lower income inequality. As the Brazilian economy slowed down in the last few years, the sustainability of this growth model has been put into question. After studying the impact of different redistributive policies (like minimum wage and income transfers) on the personal and functional distributions of income in Brazil, the paper discusses the response of aggregate consumption, investment and net exports – as well as of the economy’s productive structure and inflation rate – to the changes in income distribution itself and other relevant factors. The analysis allows us both to draw lessons to the Neo-Kaleckian literature on demand regimes, pointing towards the importance of some theoretical extensions, and to examine future prospects for the Brazilian economy.
    Keywords: demand regimes; functional and personal income distribution; Brazilian economy
    JEL: E11 E25 D31
    Date: 2015–09–21
  41. By: Henry Ngongo (UEA - Université Evangélique en Afrique)
    Abstract: This study aims to identify the leading of inflation indicators of monetary policy in DRC. The results reveal that the most relevant inflation indicators usually come from the monetary origin than the real sector. Variance decomposition analyzes place in the foreground the rate of exchange, the money supply and the public consumption like the most relevant indicators. In order to achieve its goal of price stability and to support a strong economic growth, the intermediate objective of the Central Bank baseded on the controle of the money supply seems to be less relevant. Relates to a high level of the dollarization, the central bank will be able to adopt either the strategy of nominal anchoring of the rate of exchange, this calls the return of the fixed exchange regime or to adopt a strategy of inflation targeting is to restore the credibility of the monetary policy
    Keywords: leading indicators of inflation, monetary policy
    Date: 2015–05–24
  42. By: Yushi Endo (Deputy Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Takushi Kurozumi (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Takemasa Oda (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Kenichirou Watanabe (Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: The Institute for Monetary and Economic Studies (IMES) of the Bank of Japan (BOJ) held the 2015 BOJ-IMES Conference, titled “Monetary Policy: Its Effects and Implementation,” on June 4-5, 2015 at the BOJ Head Office in Tokyo. The conference was attended by about 90 distinguished participants from academia, international organizations, and central banks. The participants discussed a wide range of issues concerning the effects and implementation of unconventional monetary policy. In his opening remarks, the BOJ Governor Kuroda raised several issues that central banks currently faced, for instance, the effects of unconventional monetary policy and its transmission channels. In the policy panel discussion, five panelists from central banks and academia, together with conference participants, discussed the issues and the thesis of secular stagnation, which had attracted growing attention in recent years. There were also five paper sessions presented by professors and central bank economists, which addressed various issues including relationship between maturity structure and supply factors in Japanese government bond markets. The conference closed with the Mayekawa Lecture on secular stagnation.
    Date: 2015–09
  43. By: Oguz Aslaner; Ugur Ciplak; Hakan Kara; Doruk Kucuksarac
    Abstract: Central Bank of the Republic of Turkey (CBRT) designed and implemented a new scheme since end-2011, called reserve option mechanism (ROM), in order to alleviate the adverse impact of capital flow volatility on the domestic economy. Although there are numerous studies on the mechanics of ROM, there has been no attempt to investigate the determinants of the ROM utilization in practice. In this note, we aim to fill this gap by using bank-level data to assess the behavioral aspects of ROM. Our results suggest that the relative cost of Turkish lira funding to foreign currency funding, as well as the reserve option coefficients set by the CBRT, largely explains the variations in the ROM utilization. In this context, we find that the most relevant proxy for the cost of Turkish lira funding for banks is overnight money market interest rates and the cost of weighted average CBRT funding. Moreover, foreign currency liquidity does not seem to be a significant parameter in driving the utilization of ROM. In light of these findings, we argue that the systematic policy induced movements in the short term domestic interest rates—higher during outflows, lower during inflows—may undermine the automatic stabilizer feature of ROM. In the conclusion part, we propose an adjustment in the remuneration of reserve requirements to strengthen the automatic stabilizer effect of ROM.
    Keywords: Monetary policy, Reserve Requirements, Capital flows, Financial Stability
    JEL: E52 E58 F31 F32
    Date: 2014
  44. By: Tavares, Tiago
    Abstract: Risk of sovereign debt default has frequently affected emerging market and developed economies. Such financial crisis are often accompanied with severe declines of employment that are hard to justify using a standard dynamic stochastic model. In this paper, I document that a labor wedge deteriorates substantially around swift reversals of current accounts or default episodes. I propose and evaluate two different explanations for these movements by linking the wedges to changes in labor taxes and in the cost of working capital. With these two features included, a dynamic model of equilibrium default is able to replicate the behavior of the labor wedge observed in the data around financial crisis. In the model, higher interest rates are propagated into larger costs of hiring labor through the presence of working capital. As an economy is hit with a stream of bad productivity shocks, the incentives to default become stronger, thus increasing the cost of debt. This reduces firm demand for labor and generates a labor wedge. A similar effect is obtained with a counter-cyclical tax rate policy. The model is used to shed light on the recent events of the Euro Area debt crisis and in particular of the Greek default event.
    Keywords: Sovereign default, labor markets, distortionary taxation, external debt, debt renegotiation, labor wedge
    JEL: E62 F32 F34 F41
    Date: 2015–05–01
  45. By: Antoine Le Riche (GAINS, Aix-Marseille University (Aix-Marseille School of Economics), GREQAM, CNRS & EHESS); Francesco Magris (LEO, University “François Rabelais” of Tours)
    Abstract: We study a two-sector OLG economy in which a share of old age consumption expenditures must be paid out of money balances and we appraise its dynamic features. We first show that competitive equilibrium is dynamically efficient if and only if the share of capital on total income is large enough while a steady state capital per capita above its Golden Rule level is not consistent with a binding liquidity constraint. We thus focus on the gross substitutability in consumption and on dynamic efficiency assumptions and show that, gathered together, they ensure the local determinacy of equilibrium and, as a consequence, rule out sunspot fluctuations. In addition, we prove that the unique steady state may change its stability from a saddle configuration to a source one (undergoing a flip bifurcation) for a capital intensive investment good as well as for a capital intensive consumption good, when the elasticity of the interest rate is set low enough. However, when the investment good is not too capital intensive, the flip bifurcation turns out to be compatible with high elasticities of the interest rate too. Analogous results within dynamic efficiency are found in the non-monetary model, the existence of a flip bifurcation requiring now a capital intensive investment good. Eventually, under dynamic inefficiency, in the non-monetary economy local indeterminacy may instead appear, either through a Hopf bifurcation or through a flip one, and its scope improves as soon as the consumption good becomes more and more capital intensive.
    Keywords: overlapping generations, two-sector, money demand, dynamic efficiency, equilibrium dynamics
    Date: 2015–09–15
  46. By: Katalin Bodnár (Magyar Nemzeti Bank (Central Bank of Hungary)); Lajos Tamás Szabó (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In our analysis, we examine the effects of emigration from Hungary on the labour market and its other economic implications. Since 2008 the number of emigrants has been rising significantly faster than the previous trend, and thus it is important to assess the possible consequences of higher mobility in the Hungarian economy. We focus primarily on the effects on wages, for which it is indispensable to give an overview of the productivity effects as well. To that end, we need to gain a deeper insight into the characteristics of emigrants. As the information in the database available to us is limited to a single segment of those working abroad, namely cross-border commuters, this is the only group for which we can provide a detailed description. We find that the number of cross-border commuters is growing especially rapidly among skilled workers with secondary qualifications and among those employed in the sectors of construction, accommodation and food service activities. As regards age groups, younger generations account for a dominant portion of commuters. Based on the individual characteristics of commuters we assume that cyclical reasons may have contributed significantly to the rise in emigration. At this time, it is difficult to gauge the full impact of emigration on wages, productivity, growth and sustainability, as these factors depend partly on future growth rate of emigration and on the extent to which those working abroad return to the Hungarian labour market.
    Keywords: emigration, labour force survey, labour market
    JEL: E24 E6 F22
    Date: 2014
  47. By: Semih Tumen; Deren Unalmis; Ibrahim Unalmis; D. Filiz Unsal
    Abstract: This paper investigates the mechanisms through which environmental taxes on fossil fuel usage can affect the main macroeconomic variables in the short-run. We concentrate on a particular mechanism : speculative storage. The existence of forward-looking speculators in the model improves the effectiveness of tax policies in reducing fossil fuel usage. Improved policy effectiveness, however, is costly : it drives inflation and interest rates up, while impeding output. Based on this tradeoff, we seek an answer to the question how monetary policy should interact with environmental tax policies in our DSGE model of fossil fuel storage.
    Keywords: Fossil fuel, Environmental taxes, Speculative storage, DSGE
    JEL: E31 E52 H23 O44
    Date: 2015
  48. By: Luke Hartigan (School of Economics, UNSW Business School, UNSW)
    Abstract: The factor structure of the U.S. economy appears to change over time. Unlike previous studies which suggest this is due to permanent structural breaks in factor loadings, I argue instead that the volatility and persistence of factor processes undergo recurring changes related to the business cycle. To capture this, I develop a two-step Markov-switching static factor estimation procedure and apply it to a well-studied U.S. macroeconomic data set. I find strong support for Markov-switching in the factors processes, with switching variances being most dominant. Conditional on Markov-switching factor processes, tests for regime-dependent factor loadings show only moderate evidence of change. Overall, the results support regime-dependent factor processes as the main explanation for the diverging number of estimated factors in empirical applications and challenge the global linearity assumption implicit in large dimensional factor models of the U.S. economy.
    Keywords: Approximate Factor Model, Large Data Sets, Markov Switching Model, Structural Breaks
    JEL: C32 C38 C51 E32
    Date: 2015–09
  49. By: Kerwin Kofi Charles; Erik Hurst; Matthew J. Notowidigdo
    Abstract: We study how the recent national housing boom and bust affected college enrollment and attainment during the 2000s. We exploit cross-city variation in local housing booms, and use a variety of data sources and empirical methods, including models that use plausibly exogenous variation in housing demand identified by sharp structural breaks in local housing prices. We show that the housing boom improved labor market opportunities for young men and women, thereby raising their opportunity cost of college-going. According to standard human capital theories, this effect should have reduced college-going overall, but especially for persons at the margin of attendance. We find that the boom substantially lowered college enrollment and attainment for both young men and women, with the effects concentrated at two-year colleges. We find that the positive employment and wage effects of the boom were generally undone during the bust. However, attainment for the particular cohorts of college-going age during the housing boom remain persistently low after the end of the bust, suggesting that reduced educational attainment may be an enduring effect of the housing cycle. We estimate that the housing boom explains roughly 30 percent of the recent slowdown in college attainment.
    JEL: E24 I21 J24
    Date: 2015–09
  50. By: Selen Baser Andic; Fethi Ogunc
    Abstract: In this paper, we analyze the forecasting properties of a wide variety of variables for Turkish inflation, and thereby pin down the ones producing robust forecasts periodically. Defining the lag structure of a variable in two different ways, we determine the non-leading forecasters and leading indicators of inflation. We employ a pseudo out-of-sample approach and compare the forecasting performance of each variable ex-post with the benchmark model. We measure forecast errors over forecast horizons instead of over time for each horizon. Results suggest that no single variable gives the best forecasts at all times, hence inflation is best forecast by different variables each period. This finding promotes the use of forecast combination strategies and/or multivariate model settings.
    Keywords: Inflation, Variable selection, Leading indicator, Turkey
    JEL: C50 C53 E31 E37
    Date: 2015
  51. By: Alexander Knobel (Gaidar Institute for Economic Policy); Alexey Mironov (Gaidar Institute for Economic Policy)
    Abstract: В последнее время на пространстве СНГ все активнее развиваются собственные интеграционные процессы, и одним из возможных и логичных вариантов дальнейшего их развития может стать создание валютного союза некоторыми государствами-членами Содружества. В работе предпринимается попытка теоретического анализа потенциальной готовности стран СНГ к созданию валютного союза с Россией, исходя из предположений и критериев, выработанных в теории оптимальных валютных зон. В первой части работы описывается ряд критериев теории ОВЗ, которые определяют готовность стран к созданию валютного союза, а также некоторые выгоды и издержки от валютного союза. Затем, на основе отобранных теоретических критериев, выделяется ряд макроэкономических показателей, по которым во второй части работы проводится оценка готовности стран СНГ к созданию валютной зоны с Россией. English Abstract: Recently there have been intensively developing integration processes in the CIS area and one of the possible and reasonable scenarios of their future development seems to be the establishment of a monetary union by some CIS countries. This research attempts a theoretical study of the CIS countries’ potential readiness to establish a monetary union with Russia basing on the presumptions and criteria developed in a theory of optimum currency areas. The first part of the research specifies some basic criteria of optimum currency area theory, which define the readiness of countries to establish a monetary union as well as certain benefits and costs of such a union. The second part of the research assesses the readiness of the CIS countries to establish a monetary union with Russia basing on a range of macroeconomic indicators determined by selected theoretical criteria.
    Keywords: integration process, CIS, monetary union, Russia, currency
    JEL: E42 F33 F36
    Date: 2014
  52. By: Nadja Dwenger; Frank M. Fossen; Martin Simmler
    Abstract: What began as a financial crisis in the United States in 2007–2008 quickly evolved into a massive crisis of the global real economy. We investigate the importance of the bank lending and firm borrowing channel in the international transmission of bank distress to the real economy—in particular, to real investment and labor employment by nonfinancial firms. We analyze whether and to what extent firms are able to compensate for the shortage in loan supply by switching banks and by using other types of financing. The analysis is based on a unique matched data set for Germany that contains firm-level financial statements for the 2004–2010 period together with the financial statements of each firm’s relationship bank(s). We use instrumental variable estimations in first differences to eliminate firm- and bankspecific effects. The first stage results show that banks that suffered losses due to proprietary trading activities at the onset of the financial crisis reduced their lending more strongly than non-affected banks. In the second stage, we find that firms whose relationship banks reduce credit supply downsize their real investment and labor employment significantly. This effect islarger for firms that are unable to provide much collateral. We document that firms partially offset reduced credit supply by establishing new bank relationships, using internal funds, and issuing new equity.
    Keywords: Financial crisis, contagion, credit rationing, relationship lending, investment
    JEL: D22 D92 E44 G01 G20 G31 H25 H32
    Date: 2015
  53. By: Gabriele Fiorentini (UNIVERSITÀ DI FIRENZE AND RCEA); Alessandro Galesi (Banco de España); Enrique Sentana (CEMFI)
    Abstract: We generalise the spectral EM algorithm for dynamic factor models in Fiorentini, Galesi and Sentana (2014) to bifactor models with pervasive global factors complemented by regional ones. We exploit the sparsity of the loading matrices so that researchers can estimate those models by maximum likelihood with numerous series from multiple regions. We also derive convenient expressions for the spectral scores and information matrix, which allows us to switch to the scoring algorithm near the optimum. We explore the ability of a model with one global factor and three regional factors to capture inflation dynamics across 25 European countries in the period 1999-2014.
    Keywords: euro area, inflation convergence, spectral maximum likelihood, Wiener-Kolmogorov filter.
    JEL: C32 C38 E37
    Date: 2015–09
  54. By: Gadi S. Perets (Université de Lyon, Lyon (University of Lyon)); Eran Yashiv (Pinhas Sapir Center for Economic Development Eitan Berglas School of Economics Tel Aviv University; Centre for Macroeconomics (CFM))
    Abstract: Many models in Economics assume a utility function belonging to the HARA family. This paper shows that HARA utility is more fundamental to economic analysis. The HARA functional form is the unique form which satisfies basic economic principles in an optimization context. Using HARA is therefore not just a matter of convenience or tractability but rather emerges from economic reasoning, i.e., it is inherent in the economic optimization problem. The paper applies Lie symmetries to the optimality equation of Merton’s (1969, 1971) widely used intertemporal model of the consumer-investor in order to show the inherent nature of the HARA utility function. Lie symmetries derive the conditions whereby the optimal solution remains invariant under scale transformations of wealth. The latter arise as the result of growth over time or due to the effects of policy. The symmetries place restrictions on the model, with the key one being the use of HARA utility. We show that this scale invariance of agents’ wealth implies linear optimal solutions to consumption and portfolio allocation and linear risk tolerance (and vice versa). The results have broad implications, as the model studied is a fundamental one in Macroeconomics and Finance. The paper demonstrates the use of Lie symmetries as a powerful tool to deal with economic optimization problems.
    Keywords: HARA utility, invariance, economic optomization, consumption and portfolio choice, macroeconomics, finance, Lie Symmetries
    JEL: D01 D11 D91 E21 G11 C60
    Date: 2015–09
  55. By: Mustafa Utku Özmen; Cagri Sarýkaya
    Abstract: [TR] Tuketici enflasyonunun cesitli kredi degiskenlerine duyarliliginin incelendigi bu calismada, Turkiye’de TUFE’nin yaklasik dortte birinin kredilerden etkilendigi bulunmustur. Atuk vd. (2014) calismasinin bulgulariyla birlikte degerlendirildiginde, ekonomi politikalarinin toplam talep ve kredileri etkilemek suretiyle enflasyon sepetinin yaklasik yarisina nufuz edebilecegi sonucuna ulasilmistir. Kredi ve cikti acigi degiskenlerinin enflasyon uzerindeki etkilerinin izlendigi mal ve hizmet kalemleri tespit edilerek para politikasi etki alanina giren ana gruplar belirlenmistir. Calisma, politika uygulamalarinin enflasyon uzerindeki etkilerinin daha net bir sekilde takip edilebilmesini saglayacak cekirdek gostergelerin turetilmesine de katkida bulunacaktir. [EN] This study on the sensitivity of consumer inflation to credit reveals that about one-fourth of the CPI significantly responds to credit use in Turkey. When considered together with the findings of Atuk et al. (2014), we conclude that economic policies targeting aggregate demand and credit may influence half of the inflation basket. The main groups that are under the influence of monetary policy are determined by identifying the goods and services through which the effects of credit and output gap on inflation are observed. This study will also contribute to compilation of core inflation measures that would enable policymakers to better track the effects of monetary policy on inflation.
    Date: 2014
  56. By: Antoine Le Riche (GAINS, Aix-Marseille University (Aix-Marseille School of Economics), GREQAM, CNRS & EHESS); Francesco Magris (LEO, University “François Rabelais” of Tours)
    Abstract: We study an infinite horizon economy with a representative agent whose utility function includes consumption, real balances and leisure. Real balances enter the utility function pre-multiplied by a parameter reflecting the inverse of the degree of financial market imperfection, i.e. the inverse of the transaction costs justifying the introduction of money in the utility function. When labor is supplied elastically, indeterminacy arises through a transcritical and a flip bifurcation, for degree of financial imperfection arbitrarily close to zero. Similar results are observed when labor is supplied inelastically: indeterminacy occurs through a flip bifurcation for values of the degree of financial imperfection unbounded away from zero. We also study the existence and the multiplicity of the steady states.
    Keywords: bifurcations, Indeterminacy, market imperfections, money demand
    Date: 2015–09–11
  57. By: Ferreira Sequeda M.T.; Grip A. de; Velden R.K.W. van der (ROA)
    Abstract: Several studies have shown that employees with temporary contracts have a lowertraining participation than those who have a contract of indefinite duration. Thereis however no empirical literature on the difference in informal learning on-the-jobbetween permanent and temporary workers. In this paper, we analyse this difference across twenty OECD countries using unique data from the recent PIAAC survey. Using an instrumented control function model with endogenous switching, we find that workers in temporary jobs engage in informal learning more intensively than their counterparts in permanent employment, although the former are, indeed, less likely to participate in formal training activities. In addition, we find evidence for complementarity between training and informal learning for both temporary and permanent employees. Our findings then suggest that temporary employment need not be dead-end jobs. Instead, temporary jobs with high learning content could be a stepping stone towards permanent employment. However, our results also suggest that labour market segmentation in OECD countries actually occurs within temporary employment due to the distinction between jobs with low and high learning opportunities.
    Keywords: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Human Capital; Skills; Occupational Choice; Labor Productivity; Labor Contracts;
    JEL: E24 J24 J41
    Date: 2015
  58. By: Cem Cebi
    Abstract: This study aims to measure the size of the government spending multiplier in Turkey for post-2001 financial crisis period within a structural VAR framework. The analysis demonstrates that a positive shock to government spending tends to increase output, tax, real interest rate on impact and the size of the fiscal multiplier is relatively large at first few quarters. The fiscal multiplier reaches a peak value of 1.5 at second quarter and then starts to diminish. Furthermore, investigating the effects of the components of government spending reveals the fact that government investment expenditures, rather than consumption expenditures, have a profound impact on output at first few quarters. However, there is no evidence that multiplier effect of government investment higher than government consumption at the end of the first year.
    Keywords: Government spending multiplier, SVAR
    JEL: E62 H30
    Date: 2015
  59. By: Chu, Angus C.; Furukawa, Yuichi; Zhu, Dongming
    Abstract: In this note, we explore the implications of cultural preference for education in an innovation-driven growth model that features an interaction between endogenous human capital accumulation and technological progress. Parents invest in children's education partly due to the preference for their children to be educated. We consider a preference parameter that measures the degree of this parental or cultural preference for education. We find that a higher degree of parental preference for education increases human capital, which is conducive to innovation, but the increase in education investment also crowds out resources for R&D investment. As a result, a stronger cultural preference for education has an inverted-U effect on the steady-state equilibrium growth rate. We also analytically derive the complete transitional path of the equilibrium growth rate and find that an increase in the degree of education preference has an initial negative effect on economic growth.
    Keywords: economic growth, human capital, education, culture
    JEL: E24 O31 O41
    Date: 2015–09
  60. By: Tiziana Cesaroni; Stefano Iezzi
    Abstract: Business surveys indicators represent an important tool in economic analysis and forecasting practices. While there is wide consensus on the coincident properties of such data, there is mixed evidence on their ability to predict macroeconomic developments in the short term. In this study we extend the previous research on business surveys predictive content by examining the leading properties of the main business survey indicators coming from the Italian Survey on Inflation and Growth Expectations (SIGE). To this end we provide a complete characterization of the business cycle properties of survey data (volatility, stationarity, turning points etc.) and we compare them with National Accounts reference series. We further analyze the forecast ability of the SIGE indicators to detect turning points using both discrete and continuous dynamic single equation models against their benchmark (B)ARIMA models. Overall the results indicate that SIGE business indicators are able to early detect turning points of their corresponding national account reference series. These findings are very important from a policy making point of view.
    Keywords: Business cycle, Business survey data, Turning points, cyclical analysis, Forecast accuracy, Macroeconomic forecasts
    JEL: C32 E32
    Date: 2015
  61. By: Semih Tumen
    Abstract: Informal jobs offer skill acquisition opportunities that may facilitate a future switch to formal employment for young workers. In this sense, informal training on the job may be a viable alternative to formal schooling in an economy with a large and diverse informal sector. In this paper, I investigate if these considerations are relevant for the schooling decisions of young individuals using panel data for 17 Latin American countries and micro-level data for Turkey. Specifically, I ask if the prevalence of informal jobs distorts schooling attainment. I concentrate on three measures of schooling outcomes : (1) secondary education enrollment rate, (2) out-of-school rate for lower secondary school, and (3) tertiary education graduation rate. I find that the secondary education enrollment rate is negatively correlated with the size of the informal economy, while the out-of-school rate is positively correlated. Moreover, the tertiary education graduation rates tend to fall as the informal employment opportunities increase. This means that informal training on the job may be crowding out school education in developing countries. Policies that can potentially affect the size of the informal sector should take into consideration these second-round effects on aggregate schooling outcomes.
    Keywords: Informal economy, Skill acquisition, Schooling outcomes, Latin America, Turkey
    JEL: E26 I21 J24 O17
    Date: 2015
  62. By: Bertrand Groslambert (SKEMA Business School; Université de Lille, ECCCS Research Center); Raphaël Chiappini (University of Nice Sophia Antipolis, France; GREDEG CNRS); Olivier Bruno (GREDEG CNRS; University of Nice Sophia Antipolis, France)
    Abstract: Since the onset of financial crisis, the System of National Accounts method for measuring the value added in the banking sector has become subject to criticism. Some authors argue that the value added by banks should be the residual net interest income after subtracting the required term and risk premiums on loans and deposits. For the first time, we apply this method to evaluate bank output for France for the period 2003 to 2012. First, we show that on average, using the traditional method, bank output is overestimated by between 31% and 74%. This overestimation is especially pronounced in times of financial stress. Second, we establish that the proposed new method is robust to the choice of various reference rates. Third, we find negative FISIM (Financial Intermediation Services Indirectly Measured) on deposits from 2009. Finally, we check the existence of a single or multiple structural unknown breaks in the long run relationship between retail interest rates and driving market reference rates. We find existence of break dates that are coincident with negative FISIM on deposits. We explain this result by a change in banking behavior that may result from the new banking regulation on liquidity and from banks' adaptation to "near" zero interest rate policy.
    Keywords: FISIM, interest rate pass-through, structural break
    JEL: E43 G21
    Date: 2015–09
  63. By: Copeland, Adam (Federal Reserve Bank of New York); Hall, George J. (Brandeis University); Maccini, Louis J. (Johns Hopkins University)
    Abstract: We study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates. An increase in the consumers’ interest rate raises their cost of financing and thus lowers the demand for new vehicles. An increase in the manufacturers’ interest rate raises their cost of holding inventories. Both channels have equilibrium effects that are amplified and propagated over time through inventories, which serve as a way to both smooth production and facilitate greater sales at a given price. Through the estimation of a dynamic stochastic market equilibrium model, we find evidence of both channels at work and of the important role played by inventories. A temporary 100 basis-point increase in both interest rates causes vehicle production to fall 12 percent and sales to fall 3.25 percent at an annual rate in the short run.
    Keywords: interest rates; automobiles; inventories; Bayesian maximum likelihood
    JEL: E44 G31
    Date: 2015–09–01
  64. By: M. Bigoni; G. Camera; M. Casari
    Abstract: Impersonal exchange is the hallmark of an advanced society and money is one key institution that supports it. Economic theory regards money as a crude arrangement for monitoring counterparts’ past conduct. If so, then a public record of past actions—or memory—should supersede the function performed by money. This intriguing theoretical postulate remains untested. In an experiment, we show that the suggested functional equivalence between money and memory does not translate into an empirical equivalence. Monetary systems perform a richer set of functions than just revealing past behaviors, which are crucial in promoting large-scale cooperation.
    JEL: C70 C90 D03 E02
    Date: 2015–09
  65. By: Victor Ekpu; Alberto Paloni
    Abstract: This paper addresses the question whether business lending is still an important source of bank profits in the UK banking system. This research question is motivated by the effects of the process of financialisation. It has been argued that one of the consequences of financialisation is a dramatic change in business strategies by financial institutions, which have turned to new fields of profitability – namely, transactions in open financial markets and household/consumer lending – moving away from traditional business lending. However, the extent to which commercial banks have embraced financialisation and the contribution of business lending to bank profitability are likely to be the result of bank-specific characteristics. This paper investigates, therefore, whether the profitability of business lending is driven by bank heterogeneity or whether it is possible to identify systematic characteristics which affect it. Using bank level data from BankScope for a total sample of 83 UK banks and building societies for the period 2005-2009 and employing panel fixed effects estimation, we find very strong size effects: in particular, while business lending is a statistically significant source of bank profits, its quantitative importance varies dramatically across bank size. For large banks, business lending contributes to the rate of return on equity very little. This finding is not due to the occurrence of the financial crisis. Indeed, large size effects are found even when the financial crisis is controlled for. While we detected strong size effects, we could not detect any ownership effects. The profitability of business lending depends on whether banks are large or small, not on whether they are domestic or foreign. One possible policy implication of our findings is that capital injections into the larger banks per se are unlikely to lead to an expansion of credit to business.
    Keywords: business lending, bank profitability, financialisation, UK banking system, bank size, bank ownership, panel data econometrics
    JEL: E44 G20 G21
    Date: 2015–09
  66. By: Tavares, Tiago
    Abstract: Highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments in these countries borrow with an interest rate penalty to compensate lenders for default risk. Reducing debt to the same extent as reserves would maintain net liabilities constant while decreasing interest payments. However, holding reserves can have insurance benefits in a financial crisis. To rationalize the levels of international reserves and external debt observed in the data, a standard dynamic model of equilibrium default is extended to include distortionary taxation and debt restructuring. This paper shows that fiscal adjustments induced by sovereign default can generate large demand for reserves if taxation is distortionary. At the same time, a non-negligible position in reserves modifies the debt restructuring negotiations upon default. A calibrated version of the model produces recovery rate schedules that are increasing with reserves, as seen in the data, being also able to replicate large positions of reserves and debt to GDP. Finally, I study how both mechanisms play a key quantitative role to generate such result, in fact, not including them, produces a counterfactual demand for reserves that is close to zero.
    Keywords: Sovereign default, international reserves, distortionary taxation, external debt, sudden stops, debt renegotiation
    JEL: E62 F32 F34 F41
    Date: 2015–04–01
  67. By: Diego A. Comin; Danial Lashkari; Martí Mestieri
    Abstract: We present a new multi-sector growth model that accommodates long-run demand and supply drivers of structural change. The model generates nonhomothetic Engel curves at all levels of development and is consistent with the decline in agriculture, the hump-shaped evolution of manufacturing and the rise of services over time. The economy converges to a constant aggregate growth rate that depends on sectoral income elasticities, capital intensities and rates of technological progress. We estimate the demand system derived from the model using historical data on sectoral employment shares from twenty-five countries and household survey data from the US. Our estimated model parsimoniously accounts for the broad patterns of sectoral reallocation observed among rich, miracle and developing economies in the post-war period. We find that income effects play a major role in generating structural change.
    JEL: E2 O11 O4 O5
    Date: 2015–09
  68. By: Tomasz Galka; Agnieszka Gontarek; Piotr Kowalski
    Abstract: The development of the Polish corporate bonds market resulted from changes on the supply side. When the Lehman Brothers went bankrupt, Polish entrepreneurs realized that financing their companies’ operations only with the use of credit, even if contracted from different sources, might not be the best idea. Consequently, Polish business turned to debt instruments – said Piotr Kowalski, one of the keynote speakers during the mBank - CASE Seminar no. 136. In the publication, which is an extended and authorized version of presentations delivered during the abovementioned seminar, the authors discuss various aspects of the corporate debt securities market in Poland. Piotr Kowalski gives a synthetic presentation of the subject of the analysis, Agieszka Gontarek presents selected domestic regulations and factors, and Tomasz Ga³ka writes about selected consequences of excessive burdens.
    Keywords: corporate finance and governance, financial markets and institutions, finance, stock exchange, securities
    JEL: G3 G34 N2 N24 E44 F31
    Date: 2015–09
  69. By: Edward Herbst (Federal Reserve Board); Dario Caldara (Federal Reserve Board)
    Abstract: This paper provides new evidence on the transmission of monetary policy shocks to the real economy and to credit markets. The identification of monetary policy shock is based on a high-frequency event study analysis. Two key results emerge from the analysis for the Great Moderation period. First, monetary policy shocks were a key driver of business and credit market conditions, explaining 35% of the forecast error of industrial production and 50% of the excess bond premium. Second, monetary policy shocks explain all movement in the excess bond premium correlated with real activity leaving no role for exogenous disruptions in credit intermediation. Finally, we extend our analysis to include the Great Recession and to examine the role of unconventional monetary policy.
    Date: 2015
  70. By: Luca Fornaro (CREI); Gianluca Benigno (London School of Economics)
    Abstract: We provide a Keynesian growth theory in which pessimistic expectations can lead to permanent, or very persistent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth.
    Date: 2015
  71. By: Mordecai Kurz; M. Motolese; G. Piccillo; H. Hu
    Abstract: We study the impact of diverse beliefs on conduct of monetary policy. Individual belief is modeled by a state variable that defines an individual’s perceived laws of motion. We use a New Keynesian Model that is solved with a quadratic approximation hence individual decisions are quadratic functions. Aggregation renders the belief distribution an aggregate state variable. Although the model has standard technology and policy shocks, diverse expectations change materially standard results about a smooth trade-off between inflation volatility and output volatility. Our main results are summed up as follows: (i) The policy space contains a curve of singularity which is a collection of policy parameters that divides the space into two sub-regions. Some trade-off between output and inflation volatilities exists within each region and some across regions. (ii) The singularity causes volatility of variables to be non monotone in policy parameters. Policymakers cannot assume a more aggressive policy will change outcomes in a predictable manner. (iii) When beliefs are diverse a central bank must also consider the volatility of individual consumption and the related volatility of financial markets. We show aggressive anti-inflation policy increases consumption volatility and aggressive output stabilization policy entails rising inflation volatility. Efficient central bank policy must therefore be moderate. (iv) High optimism about the future typically lowers aggregate output and increases inflation. This “stagflation†effect is stronger the stickier prices are. Policy response is muted since the effects of higher inflation and lower output on interest rates partially cancel each other. Effective policy requires targeting exuberance directly or its effects in asset markets. Central banks already do so with short term interventions. (v) The observed high serial correlation of 0.80 in policy shocks contributes greatly to market volatility and we show that a reduction in persistence of central bank’s deviations from a fixed rule will contribute to stability. (vi) Belief dispersion is measured by cross sectional standard deviation of individual beliefs. An increased belief diversity is found to make policy coordination harder and results in lower aggregate output and lower rate of inflation. Bank policy can lower belief dispersion by being more transparent.
    Keywords: New Keynesian Model, heterogeneous beliefs, market state of belief, Rational Beliefs, monetary policy rule
    Date: 2015
  72. By: Trenkler, Carsten; Weber, Enzo
    Abstract: This paper analyses identification for multivariate unobserved components models in which the innovations to trend and cycle are correlated. We address order and rank criteria as well as potential non-uniqueness of the reduced-form VARMA model. Identification is shown for lag lengths larger than one in case of a diagonal vector autoregressive cycle. We also discuss UC models with common features and with cycles that allow for dynamic spillovers.
    Keywords: Unobserved components models , Identification , VARMA
    JEL: C32 E32
    Date: 2015
  73. By: Cengiz Tunc; Abdullah Yavas
    Abstract: The private saving rate in Turkey has decreased substantially since 2000. In this study, we investigate the determinants of the private saving rate in Turkey, with a special focus on the role of mortgage debt. We find a strong and robust negative effect of mortgage credit growth on private saving rate. Nonmortgage consumer credit growth also has a negative and robust effect on private saving rate, though its effect is smaller than that of mortgage credit. Business credit growth, on the other hand, has a positive impact on private saving rate. Our results provide strong support for the argument that the high growth rate of consumer credit is a primary reason for the recent decrease in private saving rate in Turkey. We also find that private saving rate displays strong persistence, and public saving rate partially crowds out private saving rate. In addition, per capita real income growth rate and macroeconomic uncertainty have positive impact on private saving rate.
    Keywords: Saving, Mortgage Debt
    JEL: E21 G21
    Date: 2015
  74. By: Jakub Growiec (Warsaw School of Economics and Narodowy Bank Polski); Jakub Muck (Warsaw School of Economics and Narodowy Bank Polski)
    Abstract: We generalize the normalized Constant Elasticity of Substitution (CES) production function by allowing the elasticity of substitution to vary isoelastically with (i) relative factor shares, (ii) marginal rates of substitution, (iii) capital–labor ratios, or (iv) capital–output ratios. Ensuing four variants of Isoelastic Elasticity of Substitution (IEES) production functions have a range of intuitively desirable properties and yield empirically testable predictions for the functional relationship between relative factor shares and (raw or technology-adjusted) capital–labor ratios. As an empirical application, the parameters of IEES functions are estimated in a three-equation supply-side system with factor-augmenting technical change, based on data on aggregate production in the post-war US economy. Our estimates consistently imply that the elasticity of substitution between capital and labor has remained relatively stable, at about 0.8–0.9, from 1948 to the 1980s, followed by a period of secular decline.
    Keywords: production function, factor share, elasticity of substitution, marginal rate of substitution, normalization
    JEL: E23 E25 O33 O47
    Date: 2015–09–18
  75. By: Hatice Burcu Gurcihan Yunculer; Fethi Ogunc
    Abstract: Maliyet yonlu unsurlardaki gelismeler zaman zaman tuketici fiyatlarindaki degisimin onemli bir kismini olusturmasina ragmen, Turkiye’ye dair iktisadi yazinda bu baskilarin boyutunu olcmeye yonelik kapsamli bir calisma mevcut degildir. Bu calismada TUIK Yillik Sanayi ve Hizmet Ýstatistikleri mikro veri seti kullanilarak sektorler itibariyla (i) ana maliyet unsurlarinin (aramali, personel, finansman vs. gibi) firma maliyeti icindeki paylari elde edilmekte ve (ii) TUFE ve hizmet enflasyonunda maliyet yonlu baskilarin boyutunu olcmeye yonelik endeksler hesaplanmaktadir. Bulgular, tarim disi sektorde faaliyet gosteren, 20 ve uzerinde (20+) istihdama sahip firmalarin maliyet yapisinda en yuksek paya sahip giderlerin hammadde, personel ve faaliyetle ilgili genel isletme giderleri olduguna isaret etmektedir. Analize konu olan 2006C1-2014C3 doneminde maliyet enflasyonundaki artisa en yuksek katki soz konusu gider kalemlerinden gelmistir. 20+ istihdamý olan girisimler icin finansman giderlerinin payinin ortalamada gorece dusuk olmasi, bu buyuklukteki firmalar icin isletme sermayesi kanalinin incelenen donemde guclu bir kanal olmadigi yonunde sinyal vermektedir. Bulgular tuketici ve hizmet enflasyonu icin olusturulan maliyet gostergelerinin, bu sektorlerdeki maliyet baskilarinin yonu, boyutu ve kaynagi hakkinda fikir verme acisindan faydali gostergeler olduguna isaret etmektedir. Tuketici enflasyonuna yonelik maliyet artisinin temel belirleyicileri olarak hammadde fiyatlari ve isgucu giderleri dikkat cekerken, hizmet sektoru ozelinde isgucu maliyetlerinin onemi artmakta, isgucu ve hammadde giderlerine ek olarak faaliyetle ilgili genel isletme giderleri de onemli bir unsur olarak one cikmaktadir.
    Keywords: Inflation, Cost-push factors, Turkish economy, Firm cost structure
    JEL: E31 D24
    Date: 2015
  76. By: Yunus Aksoy (BIRKBECK, UNIVERSITY OF LONDON); Henrique S. Basso (Banco de España)
    Abstract: We investigate the link between securitization and asset prices and show that increases in the growth rate of the volume of ABS issuance lead to a sizable decline in bond and equity premia. Furthermore, we show that in a model where banks select their portfolio of assets and create synthetic securities, the compensation for undertaking risk decreases as securitization increases. The pooling and tranching of credit assets relaxes both the funding and the risk constraints banks face allowing them to increase balance sheet holdings. Accordingly, the drop in risk premium may be unrelated to a decline in actual risk.
    Keywords: pooling and tranching, equity, government bonds, bank portfolio, risk premia
    JEL: E44 G12 G2
    Date: 2015–09
  77. By: Michel Fliess; C\'edric Join
    Abstract: Recent advances in the understanding of time series permit to clarify seasonalities and cycles, which might be rather obscure in today's literature. A theorem due to P. Cartier and Y. Perrin, which was published only recently, in 1995, and several time scales yield, perhaps for the first time, a clear-cut definition of seasonalities and cycles. Their detection and their extraction, moreover, become easy to implement. Several computer experiments with concrete data from various fields are presented and discussed. The conclusion suggests the application of this approach to the debatable Kondriatev waves.
    Date: 2015–10
  78. By: Simas Kucinskas (VU University Amsterdam, the Netherlands)
    Abstract: I analyze welfare properties of mutual funds in the Diamond-Dybvig model with two sources of aggregate risk: undiversifiable interest rate risk and shocks to aggregate liquidity demand. Mutual funds are inefficient when the economy faces undiversifiable interest rate risk. However, if only aggregate liquidity demand is stochastic, mutual funds can implement the social optimum even when liquidity demand is not directly observed.
    Keywords: Mutual funds; equity contracts; liquidity creation; liquidity insurance; aggregate risk
    JEL: D91 E61 G21 G23 G28
    Date: 2015–09–24
  79. By: Hatice Gokce Karasoy; Caglar Yunculer
    Abstract: In this study, we assess empirically the relevance of consumer confidence indices (CCI) to future private consumption dynamics for Turkey in a sample period of 2002Q1 to 2014Q4. To this end, we first estimate models for total private consumption, durable and nondurable consumption growth with and without CCI and evaluate in-sample forecast powers. Next, we evaluate one-step-ahead out-of-sample forecast performances of these models from recursive OLS estimates. Finally, we test whether permanent income and precautionary savings hypotheses are capable of explaining our results on the link between consumer sentiment and future consumption expenditures. In our analyses we employ 4 different CCI series. These are overall index of CNBC-e Survey, overall index of TURKSTAT-CBRT Survey, Consumer Expectations Index (CEI) and Propensity to Consume Index (PCI) from CNBC-e Survey. Our results show that CCI have explanatory power on the future growth of both total consumption and its subcomponents. However, when other relevant variables such as real labour income, real stock price index and real interest rate are augmented to the models, CNBC-e and CEI for durable consumption, CEI and PCI for nondurable consumption are able to preserve their explanatory power on future consumption growth. On the other hand, CCI measures improve out-of-sample forecast performance for nondurable consumption growth. Finally, we find no evidence for either precautionary savings motive or permanent income hypothesis on the link between consumer sentiment and future private consumption changes.
    Keywords: Consumer confidence, Private consumption, Forecasting
    JEL: C52 C53 D12 E21 E27
    Date: 2015
  80. By: Claude Diebolt; Tapas Mishra; Mamata Parhi
    Abstract: We characterize ’Solow-Swan’ economic growth model in a stochastic environment. Our interest basically lies in modelling arrival of uncommon or stochastic shocks in both physical capital and labour, introducing discontinuities in the growth of these variables. These characterizations are completed by employing a Jump process to the Solow-Swan model. Interesting dynamics of capital and labor growth emerge from our investigation.
    Keywords: Stochastic Solow-Swan growth, Brownian motion, Jump process.
    JEL: E13 C60 O41 L1 C1 D2
    Date: 2015
  81. By: Roberto Marfè
    Abstract: This paper empirically and theoretically investigates the relation between labor rigidity and the value premium. Aggregate labor rigidity shifts dividend risk towards the short horizon and enhances the pricing of short-run risk. In turn, shorter duration equity deserves a premium over longer duration equity, that is the value premium obtains. Con- sistently, labor-share variation strongly explains the contemporaneous and intertemporal excess return of value firms over growth firms. A closed-form general equilibrium model reproduces the term-structure effect of labor rigidity and naturally gives rise to the value premium and its dynamics. The model is robust to many features of financial markets.
    Keywords: value premium, labor rigidity, term-structure, predictability, duration
    JEL: D51 E21 G12
    Date: 2015
  82. By: Fady Barsoum (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper compares the forecasting performance of the unrestricted mixed-frequency VAR (MF-VAR) model to the more commonly used VAR (LF-VAR) model sampled a common low-frequency. The literature so far has successfully documented the forecast gains that can be obtained from using high-frequency variables in forecasting a lower frequency variable in a univariate mixed-frequency setting. These forecast gains are usually attributed to the ability of the mixed-frequency models to nowcast. More recently, Ghysels (2014) provides an approach that allows the usage of mixed-frequency variables in a VAR framework. In this paper we assess the forecasting and nowcasting performance of the MF-VAR of Ghysels (2014), however, we do not impose any restrictions on the parameters of the models. Although the unrestricted version is more flexible, it suffers from parameter proliferation and is therefore only suitable when the difference between the low- and high-frequency variables is small (i.e. quarterly and monthly frequencies). Unlike previous work, our interest is not only limited to evaluating the out-of-sample performance in terms of point forecasts but also density forecasts. Thus, we suggest a parametric bootstrap approach as well as a Bayesian approach to compute density forecasts. Moreover, we show how the nowcasts can be obtained using both direct and iterative forecasting methods. We use both Monte Carlo simulation experiments and an empirical study for the US to compare the forecasting performance of both the MF-VAR model and the LF-VAR model. The results highlight the point and density forecasts gains that can be achieved by the MF-VAR model.
    Keywords: Mixed-frequency, Bayesian estimation, Bootstrapping, Density forecasts, Nowcasting
    JEL: C32 C53 E37
    Date: 2015–09–25
  83. By: K. Azim Ozdemir
    Abstract: This paper investigates the importance of interest rate shocks in explaining macroeconomic dynamics during the relatively low-inflation period in Turkey after mid-2000s. For this purpose, we compute impulse response functions using not only VAR models but also multi-step ahead forecast regressions, which are referred as Local Projections. Estimations are carried out on two different monthly data sets, a set of conventional series and a newly constructed set of series for measuring real GDP, the price level and the exchange market pressure in Turkey. Impulse responses obtained from newly constructed series exhibit more plausible dynamics than the conventional series after an interest rate shock. Moreover, results from Local Projections show remarkably similar dynamic responses to those obtained from the VAR models. This finding can be interpreted as an evidence that the identified VAR models successfully capture the true relationships among the variables.
    Keywords: Monetary Policy, Identification, VAR, Local Projections, Interpolation
    JEL: C32 E52 C82
    Date: 2015
  84. By: Mike Waugh (New York University); David Lagakos (University of California, San Diego)
    Abstract: This paper uses new tracking surveys for several developing countries to analyze rural-urban migration and their macroeconomic implications. We document that migrants from rural to urban areas typically experience large consumption growth one year after migrating, though overall migration rates are low. To understand these facts we build a model that generates a rural-urban gap in average consumption due to three factors: income risk from migration, worker sorting, and disutility from migration. We structurally estimate the model and assess the relative importance of each factor in explaining rural-urban consumption gaps. We then cross-check the model's predictions using evidence from a controlled migration experiment. Quantitative experiments using the model provide guidance about the quantitative importance of migration policy on aggregate consumption growth.
    Date: 2015
  85. By: Ole Jann (Department of Economics, University of Copenhagen); Christoph Schottmüller (Department of Economics, University of Copenhagen)
    Abstract: How can a single player defend against the threat of a coordinated attack by a group? For example, how can a central bank defend a currency peg against speculators, a government against a revolution or a prison warden against a breakout? Bentham (1787) proposed an innovative prison concept based on information asymmetries - "the panopticon" - as an answer to this question. We consider dierent information structures in a stylized model of a prison, in which a warden chooses a costly guard level with the goal of avoiding breakouts. Successful breakouts require coordination among prisoners. We show that the information structure corresponding to the panopticon often performs best, especially if there are many prisoners.
    Keywords: panopticon, coordination games, global games, transparency
    JEL: D23 D74 D82 E58 Z13 F31
    Date: 2015–08–12
  86. By: Osman Furkan Abbasoglu
    Abstract: This paper develops a model of risky health behaviors to explore the optimal cost-sharing mechanism in a single provider health insurance system in which everyone contributes the same amount. In this economy, health insurance provides coverage against controllable health outcomes, and idiosyncratic health shocks. The model is calibrated to the U.S. economy using the Medical Expenditures Panel Survey dataset. I find that the optimal set of policies is the one in which workers pay 30 percent of their health care bills while retirees pay 20 percent. Welfare gains mostly come from the healthy who prefers less generous health insurance policies.
    Keywords: Health insurance, Life cycle model, Medical expenditures
    JEL: D91 E60 I12
    Date: 2015
  87. By: Oguz Atuk; Cem Aysoy; Mustafa Utku Ozmen; Cagri Sarikaya
    Abstract: Bu calismada Turkiye ekonomisinde TUFE enflasyonunun cikti acigina ne kadar duyarli oldugu sorusuna cevap aranmaktadir. Bu amacla, TUFE’yi olusturan COICOP 5-basamakli 152 alt grup icin Phillips egrileri tahmin edilmistir. Boylelikle cikti aciginin istatistiki ve iktisadi olarak anlamli bir sekilde etkiledigi gruplar belirlenmistir. Ampirik bulgular enflasyon sepetinin yaklasýk ucte birinin cikti acigindan etkilendigini gostermistir. Cikti acigina duyarli olmayan gruplarda ise enflasyonun ithal maliyetlerle oldukca yakin bir iliski sergiledigi gozlenmistir. Sonuclar, Turkiye’de enflasyonun kalici olarak dusurulebilmesi icin cevrim karsiti (countercyclical) politikalarin tek basina yeterli olmayabilecegine isaret etmektedir.
    Keywords: Output gap, Inflation, Phillips curve, CPI, Turkey
    JEL: C13 C51 E31 E32
    Date: 2014
  88. By: A. Hakan Kara
    Abstract: [EN] Central Bank of Turkey (CBT) has been implementing a multi-instrument monetary policy strategy within a wide interest rate corridor since 2010. In this approach, composition of the central bank liquidity provision is an important component of the policy stance. Therefore, interpreting the changes in the monetary policy decisions necessitates an understanding of the practical implementation of monetary policy. By presenting a simplified exposition of the CBT’s operational framework, this note aims to answer questions such as (i) How are the short term interest rates determined? (ii) What is the implication of a change in the funding composition? (iii) Which interest rate is more relevant for the monetary transmission mechanism? We attempt to address these questions to provide some insight into the assessment of the monetary policy stance.
    Date: 2015
  89. By: Suleyman Hilmi Kal; Ferhat Arslaner; Nuran Arslaner
    Abstract: In this paper, we investigate whether deviation of a currency from its fundamentally determined rate of return affects its interaction with interest rates and stock market yields. A time varying transition probability Markov-Switching Vector Autoregressive (MS-VAR) model is utilized for this purpose. Wald and Likelihood ratio tests are used as model adequacy measures. In order to analyse the link among the variables, impulse-response functions are employed. States are defined as overvalued state and undervalued state depending on the position of the observed exchange rate to its fundamentally determined rate which is computed by sticky price exchange rate model. The model is implemented to four major currencies: Australian dollar, the Canadian dollar, the Japanese yen, and the British pound. Transition between the states are linked to risk adjusted excess return (the Sharpe ratio) of debt market and equity market returns of respected currencies in order to understand whether overvaluation and undervaluation is connected to the returns in these markets. The results provide evidence that the relationship between economic fundamentals and the nominal exchange rates are subject to change depending on the overvaluation or undervaluation of the currencies relative to their fundamentally determined rate of return. As an extension of the model, we found that the Sharpe ratios of debt and equity investments in the currencies influence the evolution of transitional dynamics of the exchange rates’ deviation from their fundamental values.
    Keywords: Bond price, Stock price, Exchange rate, Sharpe ratio, Wald ratio test, Likelihood test, Impulse-Response functions, Markov-Switching vector autoregressive model
    JEL: C32 C58 E44 F31 G15
    Date: 2015
  90. By: Paolo Giudici (Department of Economics and Management, University of Pavia); Laura Parisi (Department of Economics and Management, University of Pavia)
    Abstract: Monetary policies, either actual or perceived, cause changes in monetary interest rates. These changes impact the economy through financial institutions, which react to changes in the monetary rates with changes in their administered rates, on both deposits and lendings. The dynamics of administered bank interest rates in response to changes in money market rates is essential to examine the impact of monetary policies on the economy. Chong et al. (2006) proposed an error correction model to study such impact, using data previous to the recent financial crisis. Parisi et al. (2015) analyzed the Chong error correction model, extended it and proposed an alternative, simpler to interpret, one-equation model, and applied it to the recent time period, characterized by close-to-zero monetary rates. In this paper we extend the previous models in a dynamic sense, modelling monetary transmission effects by means of stochastic processes.The main contribution of this work consists in novel parsimonious models that provide endogenously determined and generalizable models. Secondly, this paper introduces a predictive performance assessment methodology, which allows to compare all the proposed models on a fair ground. From an applied viewpoint, the paper applies the proposed models to different interest rates on loans, showing how the monetary policy differentially impacts different types of lendings.
    Keywords: Error Correction Forecasting Bank Rates, Monte Carlo predictions, Stochastic Processes.
    Date: 2015–09
  91. By: Jose-Miguel Albala-Bertrand (Queen Mary University of London)
    Abstract: The aim of this paper is to learn about some patterns of sectoral and industrial structural change of the Chinese economy over the 1995-2010 period. To such a purpose, we set up a quantitative methodology via input-output modelling, which allows us to decompose gross output into some key demand sources or contributions. It can be shown that the trajectory of the main structural patterns over the period were both not smooth and pretty unbalanced and that they generally responded to both domestic policy and international shocks. Export demand and heavy industry appeared to be the main engines of the economy, which showed massive increases in their share of output, at the expense of domestic demand, services and agriculture. Despite the high growth rates over this period, the Chinese economy seemed to be in need of rebalancing. There is however some indication towards the end of our period that the economy was starting to go that way.
    Keywords: China, Industrial structural change, Input-output decomposition, Trajectories over 1995-2010
    JEL: L16 O4 B4 E2
    Date: 2015–09
  92. By: Marcelo de Paiva Abreu (Department of Economics PUC-Rio)
    Abstract: The British war effort in the Second World War depended on United States Lend Lease and the accumulation of sterling balances by neutrals, some of which would become belligerents and by the Empire. In the end of the war sterling balances corresponded to 60% of British net receipts under Lend Lease and were 15% higher than total Marshall Plan grants in 1948-52. Of the total sterling balances, about 40% were accumulated by India. This paper seeks to evaluate the costs incurred by India in the process of reduction of these balances after the war. The sources of accumulation of balances are examined and the use of the balances to repatriate India´s sterling debt is described. The issue of a British counterclaim entailing a partial cancellation of Indian balances is considered. British efforts to convince India to accept a partial cancellation of the balances are analyzed singling out the crucial role of Keynes in defining British policy The AngloIndian sterling balance negotiations after independence are detailed, including the disposal of balances through releases, transfer of assets to Pakistan, settlement of pensions, purchase of military stores and British gold sales. The possible contribution of British divestment to reduce outstanding balances is assessed, The Indian case is compared with those of other sterling balance holders such as Portugal, Brazil and Argentina. The links between the accumulation of sterling balances and inflation in India are considered. In the end there was a significant reduction in the purchasing power of sterling balances but not for the reasons anticipated by London.
    Date: 2015–06
  93. By: Anikó Szombati (Magyar Nemzeti Bank (the central bank of Hungary)); Kornél Kisgergely (Magyar Nemzeti Bank (the central bank of Hungary))
    Abstract: Legislation laying down the institutional system of the Banking Union was finalised in April 2014. In accordance with the regulations, non-euro area Member States, including Hungary, may notify the ECB at any time if they wish to participate in the common system even before the euro is adopted. However, in its existing form, the single supervisory and crisis management mechanism has not achieved the initial goal, i.e. the separation of the stability of national banking systems and the fiscal capacity of Member States and the elimination of interdependencies. In addition, close cooperation implies weaker powers than those provided by actual membership, and the separation of central bank and supervisory functions carries risks in non-euro area countries. By contrast, the attraction of Banking Union membership lies in the opportunity to join a uniform European system, a wider analyst base and ultimately, the “ammunition” of the EUR 55 billion available for crisis management in comparison to the contributions coming solely from the Hungarian banking system. In October 2013, a single supervisory system integrated into the central bank was set up in Hungary, and the institutional system of the domestic resolution mechanism will be complete by the end of 2014. Therefore, until the actual launch of the Banking Union and the commencement of payments into the Resolution Fund in 2016, it is reasonable to put the decision to join on hold; indeed, such a decision should be made in light of several factors presented in this study.
    Keywords: Banking Union, close cooperation, SSM, SRM, financial crisis management
    JEL: E58 F55 G21 G28 H12 H81
    Date: 2014
  94. By: Hatice Bengu Alp; Cihan Yalcin
    Abstract: Within the framework of the floating exchange rate regime which was introduced after the 2001 economic crisis, particularly non-financial firms with limited foreign currency (fx) denominated income have reduced the fraction of fx denominated loans in their total liabilities (i.e. liability dollarization rate) in order to avoid the foreign exchange risk. Nevertheless, the liability dollarization rates of Turkish non-financial firms are still very high compared to those of international peers. In the aftermath of the crisis, in general, liability dollarization rates of firms declined significantly along with the improvement in the maturity structure of fx denominated loans. As a result, balance sheet vulnerabilities of the non-financial firms have diminished to a certain extent. Accordingly, despite the sharp contraction in both domestic and foreign demand, the impact of the 2008-2009 global economic crisis on the firms’ activity has been limited with respect to the 2001 economic crisis when the foreign demand was buoyant. The estimations, which were performed by using a large firm level data set compiled by Central Bank of Turkey for the period of 1996-2010 and employing dynamic panel regressions (GMM), show that liability dollarization rates have in general favorably affected the sales and employment growth performance of non-financial firms. This finding suggests that non-financial firms in Turkey have limited access to loans in domestic currency and they circumvent this constraint by borrowing in fx denominated loans. On the other hand, it is estimated that liability dollarization tends to deteriorate the growth performance of the firms with low export shares and high liability dollarization. In sum, the analysis shows that firms would be able to ease their borrowing constraints by enhancing their export shares and hence could have a better growth performance. However, it is also observed that net profit margins of highly liability dollarized firms contract sharply especially during crisis periods due to large depreciations, which would in turn negatively influence the firms’ activities through “balance-sheet channel”.
    Keywords: Liability dollarization, Firm growth, Finance constraint, Crisis, Panel data
    JEL: L11 D21 G32 E32 C23
    Date: 2015
  95. By: Erdal Yilmaz
    Abstract: The effect of uncertainty on investment is widely considered to have a negative sign in the real option literature. Contrary to prediction of conventional real option theory, there are studies pioneered by Sarkar (2000) and Gryglewicz et al. (2008) with the argument that this negative relationship is not always correct. Such result is exceptional, since they show that uncertainty may accelerate irreversible investment without building on the convexity of the marginal product of capital in the real option framework. Major contribution of this paper, by applying the Gryglewicz et al. (2008) approach, is to show numerically that the uncertainty-investment relationship in Turkish electricity plant investment is non-monotonic and U-shaped. We also numerically compare those two studies and investigate whether certain conditions in Sarkar (2000) are associated with the parameter support by Gryglewicz et al. (2008) or not. Finally, we numerically demonstrate partial effect of the interest rate changes on optimal investment trigger based on Gryglewicz et al. (2008) framework.
    Keywords: Investment, Real Option, Uncertainty
    JEL: D92 E22 G31
    Date: 2014
  96. By: Krzysztof Klincewicz (Independent Expert)
    Abstract: In the frame of the Stairway to Excellence project, complex country analysis was performed for the EU MS that joined the EU since 2004, with the objective to assess and corroborate all the qualitative and quantitative data in drawing national/regional FP7 participation patterns, understand the push–pull factors for FP7/H2020 participation and the factors affecting the capacity to absorb cohesion policy funds. This report articulates analysis on selected aspects and country-tailored policy suggestions aiming to tackle the weaknesses identified in the analysis. The report complements the complex qualitative/ quantitative analysis performed by the IPTS/KfG/S2E team. In order to avoid duplication and cover all the elements required for a sound analysis, the report builds on analytical framework developed by IPTS.
    Keywords: Research and Innovation, EU Framework Programme for Research and Innovation, Horizon 2020, Cohesion policy, Structural Funds, SF, ERDF, European Regional Development Fund, European Structural & Investment Funds, ESIF, quality of governance, evaluation and monitoring mechanisms, Poland.
    Date: 2015–09
  97. By: Kuusi, Tero
    Abstract: This paper reconsiders the reasons for the Finnish Great Depression.The paper argues that during the crisis Finland experienced institutional adjustments that are largely neglected by the current literature, and argues that both financial and tax shocks may have contributed to the crisis more than it has been previously suggested. It is shown by using a general equilibrium model that together these factors can generate a large and widespread fall in key macroeconomic variables, whereas the results suggest that the direct impact of the collapse of the Soviet Union may not have been as large as suggested before.
    Date: 2015–09–23
  98. By: Peter Huber (Austrian Institute of Economic Research (WIFO)); Harald Oberhofer (Department of Economics, Vienna University of Economics and Business; Austrian Institute of Economic Research (WIFO)); Michael Pfaffermayr (University of Innsbruck; Austrian Institute of Economic Research (WIFO))
    Abstract: This paper offers an empirical analysis of net job creation patterns at the firm level for the Austrian economy between 1993 and 2013 focusing on the impact of firm size and age. We propose a new estimation strategy based on a two-part model. This allows to identify the structural parameters of interest and to decompose behavioral differences between exiting and surviving firms. Our findings suggest that conditional on survival, young Austrian firms experience the largest net job creation rates. Differences in firm size are not able to explain variation in net job creation rates among the group of continuing enterprises. Job destruction induced by market exit, however, is largest among the young and small firms with this effect being even more pronounced during the times of the Great Recession. In order to formulate sensible policy recommendations, a separate treatment of continuing versus exiting firms as proposed by the new two-part model estimation approach seems crucial.
    Keywords: Net job creation, firm size, firm age, one-part versus two-part models, Austrian economy, Great Recession
    JEL: C18 C53 D22 E24 L25 L26 M13
    Date: 2015–09
  99. By: Nicolas Petrosky-Nadeau (Carnegie Mellon University)
    Abstract: We develop a two-sector search-matching model of the labor market with imperfect mobility of work- ers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also triggers a reallocation of workers, with the direction of the change depending on firms' market power in the goods market. A calibrated version of the model under adaptive learning can account for house prices, sectoral labor flows, and unemployment rate changes over 1996-2010.
    Date: 2015
  100. By: Hakan Kara; Pinar Ozlu; Deren Unalmis
    Abstract: Kuresel kriz sonrasinda para politikasi uygulamalarinin likidite ve kredi politikalarini da icerecek sekilde genisletilmesi politika durusunun degerlendirilmesi bakimindan finansal gostergelerin bir butun halinde ele alinmasinin onemini artirmistir. Bu calismada, cesitli finansal gostergelerin icerdigi bilgi toplulastirilarak Turkiye icin “finansal kosullar endeksi” gelistirilmistir. Endeks temelde kur, faiz, risk primi, kredi kosullari ve getiri egrisi gibi gostergelerin ekonomik aktiviteyi tahmin gucune gore agirliklandirilarak toplulastirilmasindan olusmaktadir. Endeksin cesitli makro gostergeler ile iliskisi incelendiginde finansal kosullar ve iktisadi faaliyet arasindaki iliskinin zaman icinde degistigi, finansal kosullar ve kredi buyumesi arasindaki iliskinin ise oldukca istikrarli bir seyir izledigi gorulmektedir. Calismada ayrica finansal kosullarin hangi olcude dis kosullar (kuresel risk istahi, ABD para politikasi ve dis talep) tarafindan belirlendigi de incelenmektedir. Elde edilen bulgular, finansal kosullardaki hareketlerin buyuk oranda dis kosullar tarafindan acýklanabildigine isaret etmektedir.
    Keywords: Financial conditions index, Monetary policy, Credit growth, Forecast performance, VAR
    JEL: E43 E52 C22
    Date: 2015
  101. By: Ciuiu, Daniel
    Abstract: In this paper we study the common impact of increasing VAT and decreasing incomes in consumer models. The considered models are linear ones (see [3], [4] and [8]). It is in fact the extension of the study [2], where there was performed the study of the impact of only one of the mentioned government decision (increasing VAT). We have already noticed that applying the simple three rule is not appropriate. But the problems that arise come from the common impact. It is possible that if it is applied only the decreasing of the wedges (25%) , the incomes from selling products decreases by the ratio b , if we apply only increasing VAT the income decreases by the ratio a (we have obtained in [2] a = 4.01653 ignoring the dependence of quantity on wedges), but if there are applied both the income decreases by the ratio g ¹1−(1−a )(1−b ) . This is the general case, and the explanation of such phenomenon comes from analogous reasons as in [2]: the total income is the sold quantity multiplied by the price, hence we have not linearity. Another explanation comes from the least squares method: in the obtained linear system for estimating the three parameters (intercept, coefficient of prices and coefficient of wedges) both variables influence the result.
    Keywords: Linear regression; consumer models; interests
    JEL: C13 C20 E21
    Date: 2015–05
  102. By: Dorothée Boccanfuso (Département d'Économique, Université de Sherbrooke); Marcelin Joanis (Département d'Économique, Université de Sherbrooke); Mathieu Paquet (Département d'Économique, Université de Sherbrooke); Luc Savard (Département d'Économique, Université de Sherbrooke)
    Abstract:  Since the works of Aschauer (1989a) and Munnell (1990), several authors have attempted to establish a relationship between public infrastructure spending and productivity or economic growth. In this paper, we use the dual approach to model the contribution of public spending in infrastructure in the province of Quebec, which is the same approach that was proposed by Harchaoui and Tarkhani (2003) and applied to the Canadian economy. We use Quebec economy data to measure the contribution of public capital to sectoral economic growth for the 1997-2002 period. Our results confirm a positive relationship between public capital and economic growth albeit of smaller magnitude than those estimated in Harchaoui and Tarkhani (2003). 
    Keywords: Infrastructure, investment, growth, productivity.
    JEL: C13 D62 E22 H41 H54
    Date: 2015–09
  103. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2015–09–24
  104. By: Fernando Rugitsky
    Abstract: This paper offers an interpretation of the Great Recession based on Foley’s circuit of capital model. It is maintained that the contractionary effects of financialization were compensated by the housing bubble, from the mid-1990s to the early 2006. The busting of the bubble, then, was followed by the crisis. The model is calibrated with reference to quarterly data from the Flow of Funds Accounts, from 1960 to 1995. The interaction of financialization and the housing bubble, from 1996 to 2006 and from 2006 to 2009, is examined by simulating a baseline version of the model and imposing the observed shocks
    Keywords: circuit of capital; stock-flow consistent models; financialization; housing buble; Great Recession
    JEL: B51 E11 N12
    Date: 2015–09–15
  105. By: Masaya Yasuoka (School of Economics, Kwansei Gakuin University); Minoru Hayashida (Faculty of Economics and Business Administration, Tne University of Kitakyushu)
    Abstract: In OECD countries, redistribution policies are provided for young and old generations. Taxation of many kinds to finance the redistribution policy exists, just as redistribution policies of many kinds exist. Our paper sets a model with heterogeneous labor productivity for households and sectors of two types: a skilled sector and an unskilled sector. The model elucidates how the government should collect tax revenue for redistribution policies. Results show that the labor income tax can always shrink income inequality. However, the consumption tax increases wage inequality between skilled and unskilled sector. It is not always sufficient to shrink income inequality after redistribution, even if skilled workers increase. A corporate tax shrinks income inequality if intertemporal consumption is substitutive. Results show that the redistribution policy effects depend on how the government collects tax revenue.
    Keywords: Income inequality, Redistribution, Taxation
    JEL: H21 H23 E64
    Date: 2015–10
  106. By: Yongyang Cai; Kenneth Judd; Jevgenijs Steinbuks
    Abstract: This paper introduces a nonlinear certainty equivalent approximation method for dynamic stochastic problems. We first use a novel, stable and efficient method for computing the optimal policy functions for deterministic dynamic optimization problems, and then use them as certainty-equivalent approximations for the stochastic versions. Our examples demonstrate that it can be applied to solve high-dimensional problems with up to four hundred state variables with an acceptable accuracy. This method can also be applied to solve problems with inequality constraints that occasionally bind. These features make the nonlinear certainty equivalent approximation method suitable for solving complex economic problems, where other algorithms, such as log-linearization, fail or are far less tractable.
    JEL: C61 C63 C68 E31 E52
    Date: 2015–09
  107. By: Creedy, John; Scobie, Grant
    Abstract: This paper analyses long-term fiscal sustainability with a model which incorporates a number of feedback effects. When fiscal policy responds to ensure long-term sustainability, these feedback effects can potentially modify the intended outcomes by either enhancing or dampening the results of the policy interventions. The feedbacks include the effect on labour supply in response to changes in tax rates, changes in the country risk premium in response to higher public debt ratios, and endogenous changes in the rate of productivity growth and savings that respond to interest rates. A model of government revenue, expenditure and public debt which incorporates these feedbacks is used to simulate the outcome of a range of fiscal policy responses. In addition the effects of population ageing and productivity growth are explored.
    Keywords: Fiscal sustainability, Public debt, Long-term projections, Fiscal policy,
    Date: 2015
  108. By: Oguz Atuk; Mustafa Utku Ozmen
    Abstract: Tobacco taxation policy is not only a tool for discouraging smokers but also an important source of budgetary income. Given that many entities are interested in tobacco policy ranging from the fiscal authority to health authority, from firms to economic policy authority the design of the appropriate tax scheme is of utmost importance. The current tobacco taxation scheme in Turkey is very complex and contains incentives both for firms and consumers to deviate from a certain equilibrium. Therefore, appropriate tax policy should take into account firm pricing strategy, consumer behavior, health and industry related issues as well as fiscal concerns. With this perspective, using the current framework in Turkey, this paper proposes a strategy for appropriate tobacco taxation through a simulation analysis. The strategy can be formulized as the tax combination yielding minimum average price change, for a given tax revenue and the desired sectoral composition. Such a tax scheme will not only reduce price volatility but will also improve welfare of the entire society through lowering inflation given the high share of tobacco products in consumption basket.
    Keywords: Tobacco products, Taxation, Firm strategy, Consumer behaviour, Turkey
    JEL: E22 H21 H31 H32
    Date: 2015
  109. By: Gert G. Wagner
    Abstract: Im vorliegenden kleinen Aufsatz werden der Geschichte der deutschen Wiedervereinigung 1990 drei „Fußnoten“ angefügt. Zu den Themen „Abschätzung der Produktivität der DDR-Wirtschaft“, „Dauer des Aufholprozesses der Neuen Bundesländer“ und „Rentenangleichung“. Anschließend werden einige Schlussfolgerungen für die Möglichkeiten und Grenzen wissenschaftlicher Politikberatung gezogen.
    Keywords: German unification, German Institute for Economic Research, DIW, policy advice
    JEL: A11 A14 E65 N14 P47
    Date: 2015
  110. By: Matthias Morys
    Abstract: We add a historical and regional dimension to the debate on the Greek debt crisis. Analysing the 1841-1939 exchange-rate experience of Greece, Bulgaria, Romania and Serbia/Yugoslavia, we find surprising parallels to the present: repeated cycles of entry to and exit from gold, government debt build-up and default, and financial supervision by West European countries. Periods of stable exchange-rates were more short-lived than in any other part of Europe as a result of “fiscal dominanceâ€, i.e., a monetary policy subjugated to the treasury’s needs. Granger causality tests show that patterns of fiscal dominance were only broken under financial supervision, when strict conditionality scaled back the influence of treasury; only then were central banks able to pursue a rule-bound monetary policy and, in turn, stabilize their exchange-rates. Fiscal institutions have remained weak in the case of Greece and are at the heart of the current crisis. A lesson for today might be that the EU-IMF programmes – with their focus on improving fiscal capacity and made effective by conditionality similar to the earlier South-East European experience – remain the best guarantor of continued Greek EMU membership. Understandable public resentment against “foreign intrusion†needs to be weighed against their potential to secure the long-term political and economic objective of exchange-rate stabilisation.
    Keywords: fiscal dominance, gold standard, financial supervision, South-East Europe
    JEL: N13 N14 N23 N24 E63 F34
    Date: 2015–08
  111. By: Jesús Rodríguez-López (U. Pablo de Olavide); Gustavo A. Marrero (U. La Laguna and CAERP); Rosa Marina González-Marrero (U. La Laguna and CAERP)
    Abstract: The stock of diesel motor cars has been growing during the last decades in Europe and nowadays accounts for nearly 40% of automobile fleet. Two issues helps explain this process. Firstly, fuel efficiency (liters/km) of diesel cars is about 20% higher than that of gasoline cars on average; secondly European governments have implemented tax policies lenient with diesel fuel, thus generating an extra stimulus to use diesel motor cars. We build on an dynamic general equilibrium model that makes distinction of diesel motor and gasoline motor vehicles, and calibrate it for main European countries. The model reproduces the vehicle fleet dieselization, the rebound effects in kilometers driven, the demand for fuel, and CO2 emissions dynamics. From a normative view, the model recommends a tax discrimination according to the carbon content of each fuel, and not according to the fuel efficiency of the engine. Given that such a content is 15% higher for diesel relative to gasoline, tax rates should reflect this point: 1.40 cents of Euro per liter of diesel, and 1.22 cents per liter of gasoline. This is equivalent to imposing a tax of 19 Euros per ton of carbon. Yet Pigouvian sale taxes on new cars are useless to internalize the costs of externalities. Both recommendations are radically different to the existing fuel tax design in most OECD countries, except in Australia, Switzerland, UK and the US.
    Keywords: Energy efficiency, Rebound effect, CO2 emissions, Pigouvian taxation.
    JEL: E13 H22 Q43 Q54 R40
    Date: 2015–09
  112. By: Arthur Grimes (Motu Economic and Public Policy Research); Robert MacCulloch (University of Auckland); Fraser McKay (Motu Economic and Public Policy Research)
    Abstract: Survey evidence has revealed large differences in beliefs held by different cultures and ethnicities which may affect their economic prosperity. We study how the beliefs of New Zealand’s indigenous M?ori about the causes of wealth or poverty and the extent to which people are responsible for their own fate differ from non-M?ori using World Values Survey data from 1995 to 2011. M?ori are more likely to believe that (1) the poor have been unfairly treated and are not lazy; (2) a better life is due to luck and not hard work; (3) the Government is doing too little for those in need; and (4) business should not be run solely by the owners, compared to non-M?ori. We control for income, education and employment status, inter alia. The paper also compares differences between M?ori and non-M?ori within NZ to those between (non-indigenous) blacks and non-blacks within the US, as a benchmark. Stark results hold with respect to non-economic beliefs: whereas M?ori are 8.6% more likely to believe that the environment should be given priority over economic growth compared to non-M?ori, blacks are 20.5% less likely to hold this view compared to other Americans. Hence the evidence suggests that being indigenous plays a role in belief formation.
    Keywords: culture, beliefs, institutions
    JEL: P16 E62
    Date: 2015–09
  113. By: Lawrence Christiano (Northwestern University)
    Abstract: Slides for plenary talk delivered at the annual meeting of the Society for Economic Dynamics.
    Date: 2014
  114. By: Vasily Astrov; Daniela Weiß
    Abstract: FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics.
    Keywords: Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports
    JEL: E66 F01
    Date: 2015–09
  115. By: Ball, Christopher; Creedy, John; Scobie, Grant
    Abstract: This paper introduces uncertainty into a fiscal projection model which incorporates population ageing along with a number of feedback effects. When fiscal policy responds in order to achieve a target debt ratio, feedback effects modify the intended outcomes. The feedbacks include the effect on labour supply in response to changes in tax rates, changes in the country risk premium in response to higher public debt ratios, endogenous changes in the rate of productivity growth and savings. Stochastic projections of a range of policy responses are produced, allowing for uncertainty regarding the world interest rate, productivity growth and the growth rates of two components of per capita government expenditure. The probability of exceeding a given debt ratio in each projection year, using a particular tax or expenditure policy,can then be evaluated. Policy implications are briefly discussed.
    Keywords: Fiscal policy, Fiscal policy - New Zealand, Fiscal projections,
    Date: 2015
  116. By: Delis, Mantos D. (University of Surrey); Hasan, Iftekhar (Fordham University and Bank of Finland); Tsionas, Efthymios G (Athens University of Economics and Business, and Lancaster University Management School, Lancaster University)
    Abstract: Use of variability of profits and other accounting-based ratios in order to estimate a firm's risk of insolvency is a well-established concept in management and economics. This paper argues that these measures fail to approximate the true level of risk accurately because managers consider other strategic choices and goals when making risky decisions. Instead, we propose an econometric model that incorporates current and past strategic choices to estimate risk from the profit function. Specifically, we extend the well-established multiplicative error model to allow for the endogeneity of the uncertainty component. We demonstrate the power of the model using a large sample of U.S. banks, and show that our estimates predict the accelerated bank risk that led to the subprime crisis in 2007. Our measure of risk also predicts the probability of bank default both in the period of the default, but also well in advance of this default and before conventional measures of bank risk.
    Keywords: risk; strategic management; endogenous; profit function
    JEL: C13 C33 E47 G21 G32
    Date: 2015–08–20
  117. By: Stadin, Karolina (Department of Economics, Uppsala University)
    Abstract: According to search and matching theory, a greater availability of unemployed workers should make it easier for a firm to fill a vacancy but more vacancies at other firms should make recruitment more difficult. But what can we say about the expected magnitudes of these effects on firms’ employment dynamics? In this paper, I simulate a theoretical model featuring search frictions in the labor market, imperfect competition in the product market and quadratic adjustment costs. The simulations show quite small employment effects of typical shocks to the number of vacancies in the local labor market and very small effects of typical shocks to the number of unemployed. The employment effects are smaller in recessions than in booms. Estimation of an employment equation using panel data for Swedish firms suggests that neither the number of unemployed nor the number of vacancies in the local labor market are important for firms’ employment dynamics. Thus, the empirical results are in line with the predictions from the theoretical simulations.
    Keywords: Employment dynamics; search and matching frictions
    JEL: E24 J23 J63 J64
    Date: 2015–09–22
  118. By: Pankaj Kumar Gupta (Centre for Management Studies, JMI University); Sandeepa Kaur (Centre for Manangement Studies, JMI University, New Delhi)
    Abstract: Small and Medium Enterprises (SMEs) are playing more and more important role in world economic development. Indian SMEs have been on the forefront of the development path. However, Indian SMEs face a host of obstacles when they try to access credit market for their financing needs. Banks do not feel confident to extend loans to the business units whose track records are not apparently known to them, nor are they easily verifiable by the banks. On one side the government assigns a target of minimum threshold level of SME financing for banks and on the other side banks are reluctant to finance because of perception of higher probabilities of credit default. A specialized and effective enterprise credit rating mechanism is extremely important for these enterprises. In this paper we examine the major issues in the financing of SMEs in an Indian context and evaluate the flip side of the current rating mechanism. We also suggest a framework of financing these enterprises for respective sources of capital with comments on the role of the central bank in this regard.
    Keywords: SMEs, Enterprise Credit Rating, Credit Policy, Rating agencies, Credit Default
    JEL: E58 O23 H81
  119. By: Biagia De Devitiis (Università di Foggia); Ornella Wanda Maietta (Università di Napoli Federico II and CSEF)
    Abstract: TThe aim of this paper is to measure the shadow price of human capital in EU agriculture and to determine whether the CAP has affected the productivity of this growth-enhancing factor. For this purpose, we used the balance sheet data for the period 1986-2012, referring to the Standard Results of the EU Farm Accountancy Data Network (FADN) farm, which is representative of commercial agriculture at regional level. Data concerning output and input price indices and education attainment levels were obtained from Eurostat and from national FADNs. DEA-VRS input-oriented annual frontiers were computed to estimate the shadow price of three levels of human capital: low, medium and high. The results show an increasing trend in the shadow prices of human capital and suggest that the shadow price of the high level of human capital has been significantly greater than the shadow price of the medium level of human capital since 1990.
    Keywords: shadow prices, human capital, agriculture, growth, Malmquist index, DEA.
    JEL: D24 E24 C43
    Date: 2015–09–25
  120. By: Gustavo Chagas Goudard; Fabio Henrique Bittes Terra
    Abstract: Por um lado, é possível, a partir de Keynes e dos pós-keynesianos, inferir que existem duas naturezas para a incerteza: a que diz respeito ao processo pelo qual o sujeito conhece (epistemológica) e a que se refere ao comportamento da realidade que se quer conhecer (ontológica), sendo que nos processos de tomada de decisão, ambas incertezas estão presentes. Por outro lado, para a abordagem neoinstitucionalista, o hábito como substrato das instituições possui repercussão tanto em nível do indivíduo quanto em âmbito do todo. Assim sendo, não seriam os hábitos e as instituições hábeis a reduzir a incerteza? O objetivo deste trabalho é responder a esta questão, articulando as teorias keynesiana e neoinstitucionalista no que toca ao modo pelo qual, nesta, os hábitos e as instituições podem contribuir para que se tenha, com base naquela, a diminuição das incertezas epistemológica e ontológica.
    Keywords: Keynesian Theory, Neoinstitutionalist Theory, Uncertainty, Habit, Institution
    JEL: B2 B5 E12
    Date: 2015–09–09
  121. By: Sbaouelgi, Jihène
    Abstract: Since the early '90s, the empirical literature on human capital and economic growth is full of conflicting results. Indeed, most theoretical analyzes have confirmed that human capital has a positive and significant effect on growth. This article explore time series causality between human capital (particularly higher education) and growth in three different countries, namely Tunisia, Morocco and South Korea during the period 1960-2011. For this, we use cointegration techniques and Granger causality tests. The results show that cointegration between higher education and economic growth exists only in South Korea. This finding is explained by the high level of human capital and the country's economy.
    Keywords: human capital; economic growth; causality and cointegration
    JEL: C32 E24 O40
    Date: 2015–09–09
  122. By: Oscar Mendez (Alfred P. Sloan Foundation)
    Abstract: This paper studies the spread of the U.S. credit crisis to Mexican local labor markets, explicitly identifying the role that trade played in the transmission of the negative shock across the two countries. To identify the trade channel empirically, I exploit the variation in dependence on the U.S. market displayed by Mexican local labor markets. Differences in manufacturing industry structure caused by Mexico's opening process have made a subset of Mexican municipalities especially vulnerable to economic events in the U.S. Mexican municipalities that exported relatively more to the U.S. experienced large and significant differential effects when compared to municipalities more focused on the domestic market. Mexican regions with significant ties to the U.S. market experienced, during the crisis, a significantly larger decrease in employment and wages, and greater within local labor market adjustments than their less open counterparts.
    JEL: E24 F14 F16 J30 L60
    Date: 2015–09–24

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